Systematic Influences On Reit Liquidity

Research into market liquidity has increasingly focused on transaction (trade-by-trade) data. This has been valuable but has also increased the costs of studying the behavior of liquidity over longer periods of time. It has, however, also been shown that daily data can be examined in such as way as to extract results consistent with trade-by-trade data and this offers the possibility of exploring factors that might influence the behavior of market liquidity over time. In this study we use daily data over a fourteen year period and produce a quarterly series of metrics that reveal how market liquidity of the REIT sector has changed over that period. In this paper we also adopt a non-linear functional form in estimating illiquidity ñ after examination of the data and of the regression diagnostics, we argue that the problem of heterogeneity was affecting not only the significance but also in some cases, the parameter estimates themselves. By adopting a log-based transformation, we thus arrive at an estimate of market depth which would accord with the economistís definition of elasticity.