EPRA index inclusion leads to lasting share price hikes, research finds

Listed real estate companies that are added to a FTSE EPRA/NAREIT sector index see permanent increases in their share prices and trading volumes, research carried out for the European Public Real Estate Association (EPRA) by the University of Reading in the UK shows.

The study showed that the average long-term impact of a company being added to an EPRA index was a 13% increase in its share price and permanently higher trading volumes. Conversely, companies that were expelled from an index saw their share prices and volumes fall when they left the index, although the price drops, at -3%, were less pronounced than the rise when companies were added.

Fraser Hughes, Head of Research for EPRA, said: ‘It’s a well-known equities phenomenon that when stocks are included in the main market indices this frequently boosts their share prices and trading volumes as companies attract new capital, particularly from institutional investors benchmarking portfolios and the growing number of market tracker funds such as ETFs. But what this new research demonstrates, is that when firms enter the FTSE EPRA/NAREIT indices, those price gains are permanent, so inclusion should be an aspirational target for every emerging quoted company.’

The Reading University researchers examined the pricing and trading volume impact of a sample of 400 changes to the EPRA Indices since 1999 in a research report entitled The Performance of Index Composition Changes: Empirical Evidence from the Listed Real Estate Sector.

The study also found that inclusion in or deletion from an index had no significant affect on the volatility of a company’s share price or on its earnings per share.