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This study analyzes how three groups of market participants—insiders, analysts, and all other investors—revised their expectations on New York Real Estate Investment Trusts (REITs) in response to the catastrophic events of September 11, 2001. Our analysis reveals that, on the day when markets reopened, REITs with significant exposure to the New York area outperformed a broad REIT office index by 4:1%. However, we find that, according to several metrics of real market behavior, this anticipated superior performance of New York office properties did not materialize. Further analysis of market participants’ activity in office REIT stocks indicates that insiders were the first to lower their expectations (e.g., 99:9% of their trades in REITs with New York exposure were sales in the month following 9/11), followed by analysts (the vast majority of them revised downward their expectations of NY REIT performance in the first weeks of November 2001, albeit heterogeneously so), and finally market prices adjusted to reflect the underlying real market behavior; indeed, abnormal REIT returns had disappeared by mid-November 2001. These dynamics are consistent with theories arguing that the cross-sectional correlation of insiders and analysts’ information is an important determinant of trading and pricing patterns in semi-strong efficient market settings.


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© Elsevier. Kallberg, J., Liu, C. H., & Pasquariello, P. (2008). Updating expectations: An analysis of post-9/11 returns. Journal of Financial Markets, 11(4), 400-432. Reprinted with permission. All rights reserved.

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