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Abstract
Executive Summary. We analyze whether or not changes in institutional ownership impact the alpha returns and operating performance of real estate investment trusts (REITs). We employ panel data for 155 U.S. REITs for the 1998:Q1 to 2010:Q4 period. The identification strategy uses Fama-MacBeth firm fixed-effects and two-stage least squares fixed-effects regressions to measure the performance impact of changes in institutional ownership. We find a significant and positive impact of increases in institutional ownership on alpha returns. An interaction term shows a diminishing marginal impact with higher levels of institutional ownership. An increase in institutional ownership also yields larger values for Tobin's Q within three quarters and a higher return on assets within five quarters following an institutional ownership increase.