For months, “day traders” and hedge funds have locked onto real-estate companies’ stocks to make short-term market bets, causing volatility and adding to turmoil in the industry. But after several large stock offerings, the conditions that made such trades profitable may be shifting.
A year ago, the day-trading of real-estate stocks might have seemed like an oxymoron. Real-estate investment trusts posted slow and steady growth, paying out most of their rental income as dividends. The stocks rarely made major moves.
That changed in September, when the credit crunch turned into a crisis, commercial real-estate values began to plunge and some once-strong REITs were unable to refinance debt. It was an environment ripe for some hedge funds, which were becoming big participants in the REIT market, taking short positions on the belief that many REITs would fail. That caused volatility in the sector, attracting day traders who popped in and out of a stock based on short-term trends and news.
One measure of the volatility: The Dow Jones All Equity REIT Total Return Index swung up or down by 5% or more in a single day 35 times in the fourth quarter of last year, 29 times in the first quarter of this year, and 10 times in April. In the index’s first 18 years, from January 1990 to December 2007, there were just three days in which the index swung by more than 5%
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