The Price Dynamism during REIT Acquisitions

This study creates, models and calibrates the prices of real estate investment trusts (REITs) within an option pricing framework. Unlike Barraclough et al. [(2013). Using option prices overpayments and synergies in M&A transactions. The Review of Financial Studies, 26(3), 695-772] and Marcato and Sebehela [(2022). The paradoxical prices of options. Review of Pacific Basin Financial Markets & Policies, 25(2), 2250009], this study went further and incorporated new information in the form of news. The results show that for a target (acquiring) firm, the exponential risk premium is made up of the cost of carry plus (less) new news. The same illustration applies equally in a merged entity.