Measuring and Explaining Changes in REIT Liquidity: Moving Beyond the Bid-Ask Spread
AbstractThis paper investigates changes in REIT liquidity since the REIT boom of 1993. We use trade-by-trade data for REITs traded on the major U.S. exchanges to estimate and compare Kyle's (1985) measure of inverse liquidity for the 1993 and 1996 time periods. For our full sample of equity REITs, there is a significant increase in REIT liquidity in terms of the median price impact of trades. The increasing importance of the self-advised, self-managed organizational structure is found to be a major factor driving increased REIT liquidity. Our results imply a decline in the asymmetric information faced by market-makers. Our investigation of the changes in the size distribution and resulting price impacts of REIT trades over the 1993-1996 period yields evidence of increased importance of informed traders to REIT price dynamics. Our findings of increased liquidity indicate that the increase in adverse-selection costs due to the presence of more informed traders is more than offset by the increase in market thickness as a result of an increase in the number of uninformed (liquidity) traders. Copyright American Real Estate and Urban Economics Association.
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Bibliographic InfoArticle provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.
Volume (Year): 28 (2000)
Issue (Month): 1 ()
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- Gianluca Marcato & Charles Ward, 2006. "Back from Beyond the Bid-Ask Spread: Perspectives on Liquidity," Real Estate & Planning Working Papers rep-wp2006-15, Henley Business School, Reading University.
- Bond, Shaun A. & Chang, Qingqing, 2012. "Liquidity dynamics across public and private markets," Journal of International Money and Finance, Elsevier, vol. 31(7), pages 1890-1910.
- Susanne Cannon & Rebel Cole, 2011.
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- Cannon, Susanne E. & Cole, Rebel A., 2008. "Changes in REIT liquidity 1988 - 2007: Evidence from daily data," MPRA Paper 24694, University Library of Munich, Germany, revised 20 Aug 2010.
- Dirk Brounen & Piet Eichholtz & David Ling, 2009. "The Liquidity of Property Shares: An International Comparison," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(3), pages 413-445.
- Jaakko Niskanen & Heidi Falkenbach, 2011. "Liquidity of European real estate equities: REITs and REOCs," International Journal of Strategic Property Management, Taylor & Francis Journals, vol. 16(2), pages 173-187, May.
- Robert Campbell & Chinmoy Ghosh & C. Sirmans, 2005. "Value Creation and Governance Structure in Reit Mergers," The Journal of Real Estate Finance and Economics, Springer, vol. 31(2), pages 225-239, September.
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