Asymmetric political attention across foreign and domestic private equity real estate investors

ABSTRACT

Private equity real estate (PERE) markets suffer from information inefficiency. In this study, we examine if Google Trends could help in partially mitigating the inefficiency issues. Using monthly PERE investment activities in India between 2005 and 2017, and controlling for macroeconomic variables, we show that relevant search trends are significantly associated with future investment activities. Compared to domestic investors, foreign investors are subject to information asymmetry and their investment activity is particularly sensitive to political search trends in the target country. We detect a mutually causal association between investment activity and political searches. Although significant, the effect of political Google Trends on investment activity is short-lived and fades within two months.

KEYWORDS:

• Private equity
• real estate
• Google
• politics
• investment
• India

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. See Fuerst and Matysiak (2013), Fuerst et al. (2013), Farrelly and Stevenson (2016), and Delfim and Hoesli (2016); Gupta et al. (2020).

2. See Chin et al. (2006); Lim et al. (2006); Lieser and Groh (2011, 2014); Cashman and Harrison (2015); Eichholtz et al. (2011).

3. Embassy Office Park REIT came up with US$ 690.31 million Initial Public Offer in March 2019. It was 2.57 times oversubscribed and had a portfolio of 32.7 million sq.ft. space. By the end of 2019, it was trading on stock market at a premium of over 40%.

4. Since 2014, many global institutional investors have invested in Indian real estate for acquisition of core assets subsequently to be listed as REITs. This is a major change in buyer and asset profile as prior to this India was a predominantly an opportunistic investment play.

5. As estimated in 21st edition of ICUBE report, highlights are available at https://imrbint.com/images/common/ICUBE%E2%84%A2_2019_Highlights.pdf

6. See https://www.statista.com/statistics/220534/googles-share-of-search-market-in-selected-countries/for the share of Google in desktop searches in November 2019.

7. E.g. as on 17th March, the latest index data available was for September 2020.

8. Venture Intelligence data was collected for the duration of February 2005 to June 2017, whereas VCC Edge data was collected for duration of February 2005 to December 2015 (149 months). The gaps and inconsistencies in these two datasets were checked through various publicly available sources like investor/investee website, annual reports and stock market announcements.

9. See https://support.google.com/trends/answer/4365533?hl=en&ref_topic=6248052

10. The autonomous educational institute is subject to the Indian Federal Government regulations. The political themes are based on its module on ‘Indian Culture and Heritage’. Chapter 20 titled ‘Socio-Cultural Issues in Contemporary India’ can be found at: https://nios.ac.in/online-course-material/secondary-courses/indian-culture-and-heritage-(223)-syllabus.aspx

11. with duplications to reflect the aggregate supply of news.

12. The VAR models explain the direct effect of regressors on the dependent variable. However, given the intertwined lag structure, additional analyses explain the association over longer terms. In the next step, we run causality tests. The null hypothesis for the causality test is that contemporaneous inclusion (or exclusion) of a particular ‘cause’ variable does not significantly alter the future outcome of dependent variables. Granger causality tests are based on a null hypothesis that the inclusion of a lagged ‘cause’ variable does not significantly change the prediction for dependent variables. In both cases, rejecting the null hypothesis provides evidence that the cause variables have a significant effect jointly on all other endogenous variables in the system. See Appendix B.

Additional information

Notes on contributors

Ashish Gupta

Ashish Gupta, PhD is Associate Professor and Director – Research & Consulting at RICS School of Built Environment, Amity University, Noida, India. He has previously worked in the real estate industry in India for 14 years; including 8 years with JLL. He is a member of the Royal Institute of Chartered Surveyors. His research interests cover private equity real estate funds, investment risk, property development, and urban issues.

Prashant Das

Prashant Das, PhD is an Associate Professor (Finance & Accounting Area) at IIM Ahmedabad. Earlier, at EHL-HES.SO//University of Applied Sciences and Arts Western Switzerland he was an Associate professor and Director of Real Estate Finance and Economics Institute and serves on the school’s Academic Board. Prashant has earned nine internationally recognised research awards and has published 22 scholarly articles in real estate and finance journals including the Journal of Banking and Finance, Journal of Real Estate Finance and Economics, Journal of Real Estate Research and Journal of Property Research. He has authored/edited two books for SAGE and Routledge Publications.