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Liquidity dynamics across public and private markets

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  • Bond, Shaun A.
  • Chang, Qingqing

Abstract

In this paper we investigate cross-asset liquidity between equity markets and REITs and between REITs and private real estate markets. While many studies have investigated REIT liquidity, and there is an emerging interest in liquidity in the private real estate markets, there appears to be little knowledge of the dynamics of cross-market liquidity. We find lower levels of liquidity for REITs compared to a set of control firms matched on size and book-to-market ratios. Commonality in liquidity is also lower for REITs than the controls and the overall market. However, we do find an important difference in share turnover for REITs, which appears to have a higher level of commonality than found in other studies. We suggest that this may be due to the financial crisis. Additionally we find evidence of similar time-series variation in liquidity for public and private real estate markets. We also find significant directional causality for most liquidity proxies from the public to private real estate markets. Finally our results show that there is strong contemporaneous correlation between both public and private real estate market liquidity and the term spread and real investment and consumption spending. REIT liquidity measures based on intraday data also appear to contain important information not found in measures constructed from daily returns.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:jimfin:v:31:y:2012:i:7:p:1890-1910
    DOI: 10.1016/j.jimonfin.2012.05.020
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    References listed on IDEAS

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    1. repec:kap:jrefec:v:55:y:2017:i:1:d:10.1007_s11146-016-9554-3 is not listed on IDEAS
    2. Qing Bai & Shaun A. Bond & Brian Hatch, 2015. "The Impact of Leveraged and Inverse ETFs on Underlying Real Estate Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(1), pages 37-66, March.

    More about this item

    Keywords

    Cross-market liquidity; REITs; Commercial real estate;

    JEL classification:

    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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