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Real Estate Investment Trusts, Small Stocks and Bid‐ask Spreads

Author

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  • Edward F. Nelling
  • James M. Mahoney
  • Terry L. Hildebrand
  • Michael A. Goldstein

Abstract

This study examines the liquidity of Real Estate Investment Trusts (REITs), as measured by their bid‐ask spread. We find that REIT spreads have increased over the period 1986–1990, are inversely related to market capitalization, and are similar in magnitude to spreads on other stocks of comparable size. Analysis of variance tests indicate that REIT spreads are similar across equity, mortgage and hybrid asset types. Multivariate regression results indicate that market capitalization is the primary determinant of REIT bid‐ask spreads, and spreads are larger for National Association of Securities Dealers Automated Quotations (NASDAQ) REITs than for New York Stock Exchange (NYSE) REITs. The regression results also indicate that spreads are lower for equity REITs than for mortgage or hybrid REITs, and are inversely related to the fraction of the REIT's shares held by institutional investors. The similarity between REIT spreads and those of other common stocks holds in both bull and bear real estate markets and suggests that, from a liquidity perspective, REITs are similar to other common stocks.

Suggested Citation

  • Edward F. Nelling & James M. Mahoney & Terry L. Hildebrand & Michael A. Goldstein, 1995. "Real Estate Investment Trusts, Small Stocks and Bid‐ask Spreads," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(1), pages 45-63, March.
    • Handle: RePEc:bla:reesec:v:23:y:1995:i:1:p:45-63
    DOI: 10.1111/1540-6229.00657
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    Citations

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    Cited by:

    1. 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, University of Reading.
    2. Vijay Bhasin & Rebel A. Cole & Joseph K. Kiely, "undated". "Changes in REIT Liquidity 1990-94: Evidence from Intra-day Transactions," Finance and Economics Discussion Series 1996-22, Board of Governors of the Federal Reserve System (U.S.), revised 10 Dec 2019.
    3. 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, September.
    4. Thomas Paul & Thomas Walther & André Küster-Simic, 2022. "Empirical analysis of the illiquidity premia of German real estate securities," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(2), pages 203-260, June.
    5. Edward Nelling & Joseph Gyourko, 1998. "The Predictability of Equity REIT Returns," Journal of Real Estate Research, American Real Estate Society, vol. 16(3), pages 251-268.
    6. Gianluca Marcato & Charles Ward, 2007. "Back from Beyond the Bid–Ask Spread: Estimating Liquidity in International Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(4), pages 599-622, December.
    7. Denis Schweizer & Lars Haß & Lutz Johanning & Bernd Rudolph, 2013. "Do Alternative Real Estate Investment Vehicles Add Value to REITs? Evidence from German Open-ended Property Funds," The Journal of Real Estate Finance and Economics, Springer, vol. 47(1), pages 65-82, July.
    8. Susanne Cannon & Rebel Cole, 2011. "Changes in REIT Liquidity 1988–2007: Evidence from Daily Data," The Journal of Real Estate Finance and Economics, Springer, vol. 43(1), pages 258-280, July.
    9. Elizabeth Devos & Erik Devos & Seow Eng Ong & Andrew C. Spieler, 2019. "Information Asymmetry and REIT Capital Market Access," The Journal of Real Estate Finance and Economics, Springer, vol. 59(1), pages 90-110, July.
    10. Benjamin Blau & Jared Egginton & Matthew Hill, 2016. "REITs and market friction," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 1-24, January.
    11. Jain, Pawan & Upadhyay, Arun, 2021. "Are REITs more resilient than non-REITs? Evidence from natural experiments," Japan and the World Economy, Elsevier, vol. 58(C).
    12. Gianluca Marcato, 2018. "Liquidity Pricing of Illiquid Assets," ERES eres2018_215, European Real Estate Society (ERES).
    13. Pawan Jain & Mark Sunderman & K. Janean Westby-Gibson, 2017. "REITs and Market Microstructure: A Comprehensive Analysis of Market Quality," Journal of Real Estate Research, American Real Estate Society, vol. 39(1), pages 65-98.
    14. Benjamin Blau & Jared F. Egginton & Matthew Hill, 2016. "REITs and market friction," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 1-24, January.
    15. William Hardin & Kartono Liano & Gow-Cheng Huang, 2005. "REIT Stock Splits and Market Efficiency," The Journal of Real Estate Finance and Economics, Springer, vol. 30(3), pages 297-315, April.
    16. SeungHan Ro & Paul Gallimore, 2014. "Real Estate Mutual Funds: Herding, Momentum Trading and Performance," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(1), pages 190-222, March.

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