Patricia A. Ryan and Sriram V. Villupuram
The purpose of this study is to explain the mixed results to changes in the DJIA index documented in the literature. The authors show that economic cycles, especially recessionary…
Abstract
Purpose
The purpose of this study is to explain the mixed results to changes in the DJIA index documented in the literature. The authors show that economic cycles, especially recessionary periods, explain the difference in findings.
Design/methodology/approach
The authors examine changes in the Dow Jones Industrial Average (DJIA) from 1929 to 2019 to evaluate immediate and long-term market reactions after a component change. Using multiple event-study methodologies, the authors examine the full era, the pre- and post-exchange traded fund (ETF) windows and economic cycles using both pre and post-estimation windows.
Findings
In aggregate, DJIA additions do not present an increase in wealth; however, wealth effects are positive during expansions and negative during recessions. Deletions have a negative wealth effect. The authors find weak evidence of an indexing effect. Additions are positive post-1998, and deletions remain negative regardless of era. In the long run, firms added to the DJIA have positive abnormal returns in the second year after inclusion. Deletions in recessionary times have negative returns three years after removal, a signal of longer-term wealth decline for these firms.
Research limitations/implications
The DJIA changes periodically to better represent industries relevant to the blue-chip market, and the findings have implications for fund managers and active investors.
Practical implications
The DJIA changes periodically to better represent industries relevant to the blue-chip market, and the findings have implications for fund managers and active investors.
Originality/value
Prior literature presents limited time series of data points and mixed results and implications. The authors find that the economic cycle is a driving factor that supports predicted signs and amounts of wealth change. Furthermore, the authors see limited ETF impact on DJIA changes and some impact of the choice of estimation period.
Details
Keywords
Ramya Rajajagadeesan Aroul, Sanjiv Sabherwal and Sriram V. Villupuram
The purpose of the paper is to examine the relationship between the Environmental, Social and Governance (ESG) performance of Real Estate Investment Trusts (REITs) and their…
Abstract
Purpose
The purpose of the paper is to examine the relationship between the Environmental, Social and Governance (ESG) performance of Real Estate Investment Trusts (REITs) and their operational efficiency and performance.
Design/methodology/approach
The authors use S&P Global (formerly SNL Real Estate) for the study analyses and examine all publicly traded REITs based in the United States over the 2019–2020 sample period. The authors regress the measures of REIT operational efficiency and operational performance on REIT ESG scores while controlling for REIT characteristics and use an ordinary least squares (OLS) estimation model with heteroscedasticity-robust standard errors. The authors also run additional regressions to examine the implications of operational efficiency on the relationship between ESG and operational performance.
Findings
The authors find that REITs that perform well on the ESG scale have higher operational efficiency. In addition, the authors find that REITs with better ESG scores are associated with better operational performance. Finally, the authors find that the positive association between ESG scores and operational performance is stronger in REITs with higher operational efficiency.
Practical implications
First, the adoption of ESG adds value to the REIT in terms of increased operational performance and efficiency. Second, the value addition of ESG to an REIT is driven by the better operational efficiency of some REITs over the others. Therefore, the authors’ findings suggest that REITs that currently score poorly on ESG performance would first need to focus on all the possible avenues to improve economies of scale and hence operational efficiency. This approach would help ensure that when those REITs adopt ESG initiatives, they get the most bang for their buck.
Originality/value
To the best of the authors’ knowledge, this is the first study that relates operational efficiency and operational performance of REITs to their ESG scores.