Effects of Serial Position on Stock Liquidity: Evidence from Japanese REIT Markets

An important feature of public Real Estate Investment Trusts (REITs) is that they enhance the liquidity of the underlying illiquid property markets. Surprisingly REITs in Japan are among the most illiquid stocks in the Tokyo Stock Exchange. We examine an important but neglected factors of market liquidity – serial-position effects – in Japanese REIT (J-REITs) markets. Researches in social science suggest that serial-position effects exist extensively but less evidence are documented in financial markets, and much rarer in real estate finance literature. Given the relative homogeneity of investment and regulatory constraints faced by Japanese REITs, we argue that J-REITs provide a controlled environment to identify serial-position effects in a financial market. We find that stocks of J-REITs with their company names in higher "Katakana" order are significantly more liquid-lower price impact and higher turnover - than those with names in the lower order. We further document a non-linear, two-dimensional position effects using the nested linguistic complexity of Japanese. Our results cannot be fully explained by traditional factors of stock liquidity.