Is the Mean Return of Hotel Real Estate Stocks Apt
to Overreact to Past Performance?
Published online: 27 November 2009
Springer Science+Business Media, LLC 2009
Abstract This study examines the return patterns of hotel real estate stocks in the U.S.
during the period from 1990 to 2007.We find that the magnitude and persistence of
future mean returns of hotel real estate stocks can be predicted based on past returns, past
earnings surprise, trading volume, firm size, and holding period. The empirical evidence
found from this paper confirms that short-horizon contrarian profits can be partially
explained by the lead-lag effects, while in the intermediate-term price momentum profits
and long-term contrarian profits can be partially attributed to the firms’ overreaction to
past price changes. Our results support the contrarian/overreaction hypothesis, and they
are inconsistent with the Fama-French risk-based hypothesis or the underreaction
hypothesis. The study also confirms the earning underreaction hypothesis and finds the
high volume stocks tend to earn high momentum profits in the intermediate-term. The
study finds that the earning momentum effect for hotel stocks is more short-lived and
smaller in magnitude than the market average. Price momentum portfolios (or contrarian
portfolios) of big hotel firms underperform small hotel firms and the hotel price
momentum portfolio (or contrarian portfolios) significantly underperform the overall
market over the intermediate-term (or the long-term). These findings imply that the U.S.
hotel industry, particularly the big hotel firms, have experienced relatively conservative
growth in the sample period. It suggests that a conservative hotel growth strategy
accompanied by an internal-oriented financing policy is proper in a period of prosperity.
J Real Estate Finan Econ (2010) 40:497–543
M. Zhang (*)
Finance, Real Estate, and Law Department, California State Polytechnic University, Pomona,
3801 West Temple Avenue, Pomona, CA 91768, USA
Institute of Real Estate Studies, National University of Singapore, 21 Heng Mui Keng Terrace,
#04-02, Singapore 119613, Singapore