mREITs Trading at Steep Discounts to Book Value Violates Efficient Market Theory
"..Many mREITs are trading at steep discounts to book value. American Capital Agency Corp. (AGNC) has stated that its latest book value is $25.27 and the stock last traded at $19.59. The generally accepted explanation for the discount to book value is that most investors think that interest rates are headed higher. However, this would appear to be a violation of Modern Portfolio Theory, the Capital Asset Pricing Model and the Efficient Market Hypothesis. See: 30% Yielding MORL, MORT And The mREITs: A Real World Application And Test Of Modern Portfolio Theory for an explanation of Modern Portfolio Theory.
Clearly, if investors thought the stock market was headed lower, one would not expect to see the SPDR S&P 500 Trust ETF (SPY) or even the Direxion Daily S&P 500 Bull 3X Shares ETF (SPXL), which is leveraged 3X, to trade at any significant discount to book value. Thus, if investors were negative on the prospects for common stock, both the ETFs and the underlying shares would be equally depressed..."