Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/24694.html
   My bibliography  Save this paper

Changes in REIT liquidity 1988 - 2007: Evidence from daily data

Author

Listed:
  • Cannon, Susanne E.
  • Cole, Rebel A.
Abstract
In this study, we present panel-data evidence on REIT liquidity and its determinants over the 1988 – 2007 period. We focus upon liquidity measures that do not require micro-structure data (1) to facilitate use of our results as benchmarks for comparisons with results from international markets for which micro-structure data may be unavailable, (2) to provide benchmarks that do not require access to costly (and voluminous) micro-structure data. We find that REIT liquidity improved during the early and mid-1990s, deteriorated during the late 1990s, and then improved dramatically during 2000 – 2006, with the notable exception of 2007. Liquidity improved the most for REITs traded on the NYSE, and was an order of magnitude better than liquidity of REITs traded on the AMEX or NASDAQ. We link the deterioration in liquidity observed in 2007 to the investment portfolio of a REIT. We find that the percentage bid-ask spread is highly correlated with the measure of price impact proposed by Amihud (2002). We provide panel-data evidence on the key determinants of the percentage bid-ask spread that largely confirms the results reported by Bhasin, Cole and Kiely (1997) for 1990 and 1994: the percentage spread is a positive function of the volatility of stock returns, and a negative function of dollar volume turnover, share price and market capitalization. Finally, we provide evidence that these results obtained using daily closing bid- and ask-prices are not qualitatively different from those obtained using market micro-structure data. This suggests that we can use liquidity measures based upon readily available daily return data rather than being forced to rely upon market micro-structure data.

Suggested Citation

  • 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.
    • Handle: RePEc:pra:mprapa:24694
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/24694/1/MPRA_paper_24694.pdf
    File Function: original version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/29187/1/MPRA_paper_29187.pdf
    File Function: revised version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/52620/20/MPRA_paper_52620.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Biais, Bruno & Glosten, Larry & Spatt, Chester, 2005. "Market microstructure: A survey of microfoundations, empirical results, and policy implications," Journal of Financial Markets, Elsevier, vol. 8(2), pages 217-264, May.
    2. Peihwang Wei & Cheng‐Ho Hsieh & C. F. Sirmans, 1995. "Captive Financing Arrangements and Information Asymmetry: The Case of REITs," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(3), pages 385-394, September.
    3. Tarun Chordia & Richard Roll & Avanidhar Subrahmanyam, 2001. "Market Liquidity and Trading Activity," Journal of Finance, American Finance Association, vol. 56(2), pages 501-530, April.
    4. 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.
    5. Jim Clayton & Greg MacKinnon, 2000. "Measuring and Explaining Changes in REIT Liquidity: Moving Beyond the Bid-Ask Spread," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(1), pages 89-115.
    6. Kadlec, Gregory B & McConnell, John J, 1994. "The Effect of Market Segmentation and Illiquidity on Asset Prices: Evidence from Exchange Listings," Journal of Finance, American Finance Association, vol. 49(2), pages 611-636, June.
    7. Amihud, Yakov & Mendelson, Haim & Lauterbach, Beni, 1997. "Market microstructure and securities values: Evidence from the Tel Aviv Stock Exchange," Journal of Financial Economics, Elsevier, vol. 45(3), pages 365-390, September.
    8. repec:bla:jfinan:v:43:y:1988:i:4:p:1041-48 is not listed on IDEAS
    9. Lawrence Benveniste & Dennis R. Capozza & Paul J. Seguin, 2001. "The Value of Liquidity," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(4), pages 633-660, April.
    10. Amihud, Yakov & Mendelson, Haim, 1986. "Asset pricing and the bid-ask spread," Journal of Financial Economics, Elsevier, vol. 17(2), pages 223-249, December.
    11. Vijay Bhasin & Rebel A. Cole & Joseph K. Kiely, 1997. "Changes in REIT Liquidity 1990–1994: Evidence from Intra‐day Transactions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 25(4), pages 615-630, December.
    12. 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.
    13. Harold Demsetz, 1968. "The Cost of Transacting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(1), pages 33-53.
    14. Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
    15. 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.
    16. Amihud, Yakov, 2002. "Illiquidity and stock returns: cross-section and time-series effects," Journal of Financial Markets, Elsevier, vol. 5(1), pages 31-56, January.
    17. Chordia, Tarun & Roll, Richard & Subrahmanyam, Avanidhar, 2000. "Commonality in liquidity," Journal of Financial Economics, Elsevier, vol. 56(1), pages 3-28, April.
    18. Stoll, Hans R, 1978. "The Pricing of Security Dealer Services: An Empirical Study of NASDAQ Stocks," Journal of Finance, American Finance Association, vol. 33(4), pages 1153-1172, September.
    19. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    20. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Multiproduct Firms, Product Differentiation, and Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
    21. Scott D. Below & Joseph K. Kiely & Willard McIntosh, 1995. "An Examination of Informed Traders and the Market Microstructure of Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 10(3), pages 335-361.
    22. Berkman, Henk & Eleswarapu, Venkat R., 1998. "Short-term traders and liquidity: a test using Bombay Stock Exchange data," Journal of Financial Economics, Elsevier, vol. 47(3), pages 339-355, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. John Cotter & Stuart Gabriel & Richard Roll, 2015. "Can Housing Risk Be Diversified? A Cautionary Tale from the Housing Boom and Bust," The Review of Financial Studies, Society for Financial Studies, vol. 28(3), pages 913-936.
    2. Daniel Broxterman & Tingyu Zhou, 2023. "Information Frictions in Real Estate Markets: Recent Evidence and Issues," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 203-298, February.
    3. Pawan Jain & Spenser J. Robinson & Arjun J. Singh & Mark Sunderman, 2017. "Hospitality REITs and financial crisis: a comprehensive assessment of market quality," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 35(3), pages 277-289, April.
    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. Dongshin Kim & Dongkuk Lim & Jonathan A. Wiley, 2023. "Narrative Investment-Risk Disclosure & REIT Investment," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 542-567, February.
    6. Gianluca Marcato, 2018. "Liquidity Pricing of Illiquid Assets," ERES eres2018_215, European Real Estate Society (ERES).
    7. Huang, MeiChi & Wu, Chih-Chiang & Liu, Shih-Min & Wu, Chang-Che, 2016. "Facts or fates of investors' losses during crises? Evidence from REIT-stock volatility and tail dependence structures," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 54-71.
    8. 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.
    9. George D. Cashman & David M. Harrison & Hainan Sheng, 2021. "Option Trading and REIT Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(1), pages 332-389, March.
    10. Paul Goebel & David Harrison & Jeffrey Mercer & Ryan Whitby, 2013. "REIT Momentum and Characteristic-Related REIT Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 47(3), pages 564-581, October.
    11. Cheung, William Mingyan & Chung, Richard & Fung, Scott, 2015. "The effects of stock liquidity on firm value and corporate governance: Endogeneity and the REIT experiment," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 211-231.
    12. 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.
    13. Massimo Guidolin & Manuela Pedio & Dimos Andronoudis, 2019. "How Smart is the Real Estate Smart Beta? Evidence from Optimal Style Factor Strategies for REITs," BAFFI CAREFIN Working Papers 19117, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    14. 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.
    15. 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.
    16. 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).
    17. 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.
    18. Driessen, Joost & Van Hemert, Otto, 2012. "Pricing of commercial real estate securities during the 2007–2009 financial crisis," Journal of Financial Economics, Elsevier, vol. 105(1), pages 37-61.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gianluca Marcato, 2018. "Liquidity Pricing of Illiquid Assets," ERES eres2018_215, European Real Estate Society (ERES).
    2. 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.
    3. Vayanos, Dimitri & Wang, Jiang, 2013. "Market Liquidity—Theory and Empirical Evidence ," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1289-1361, Elsevier.
    4. Martin Hoesli & Anjeza Kadilli & Kustrim Reka, 2017. "Commonality in Liquidity and Real Estate Securities," The Journal of Real Estate Finance and Economics, Springer, vol. 55(1), pages 65-105, July.
    5. Díaz, Antonio & Escribano, Ana, 2020. "Measuring the multi-faceted dimension of liquidity in financial markets: A literature review," Research in International Business and Finance, Elsevier, vol. 51(C).
    6. Alexander, Gordon J. & Ors, Evren & Peterson, Mark A. & Seguin, Paul J., 2004. "Margin regulation and market quality: a microstructure analysis," Journal of Corporate Finance, Elsevier, vol. 10(4), pages 549-574, September.
    7. BEAUPAIN, Renaud & GIOT, Pierre & PETITJEAN, Mikael, 2006. "Market-wide liquidity co-movements, volatility regimes and market cap sizes," LIDAM Discussion Papers CORE 2006102, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. 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.
    9. Lischewski, Judith & Voronkova, Svitlana, 2012. "Size, value and liquidity. Do They Really Matter on an Emerging Stock Market?," Emerging Markets Review, Elsevier, vol. 13(1), pages 8-25.
    10. 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.
    11. Chordia, Tarun & Sarkar, Asani & Subrahmanyam, Avanidhar, 2005. "The Joint Dynamics of Liquidity, Returns, and Volatility Across Small and Large Firms," University of California at Los Angeles, Anderson Graduate School of Management qt6z81z2wc, Anderson Graduate School of Management, UCLA.
    12. Ali, Searat & Liu, Benjamin & Su, Jen Je, 2017. "Corporate governance and stock liquidity dimensions: Panel evidence from pure order-driven Australian market," International Review of Economics & Finance, Elsevier, vol. 50(C), pages 275-304.
    13. Söderberg, Jonas, 2008. "Do Macroeconomic Variables Forecast Changes in Liquidity? An Out-of-sample Study on the Order-driven Stock Markets in Scandinavia," CAFO Working Papers 2009:10, Linnaeus University, Centre for Labour Market Policy Research (CAFO), School of Business and Economics.
    14. Nina Karnaukh & Angelo Ranaldo & Paul Söderlind, 2015. "Understanding FX Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 28(11), pages 3073-3108.
    15. Medina, Vicente & Pardo, Ángel & Pascual, Roberto, 2014. "The timeline of trading frictions in the European carbon market," Energy Economics, Elsevier, vol. 42(C), pages 378-394.
    16. Hagströmer, Björn & Anderson, Richard G. & Binner, Jane & Nilsson, Birger, 2009. "Dynamics in Systematic Liquidity," Working Papers 2009:7, Lund University, Department of Economics.
    17. Brennan, Michael J. & Chordia, Tarun & Subrahmanyam, Avanidhar & Tong, Qing, 2012. "Sell-order liquidity and the cross-section of expected stock returns," Journal of Financial Economics, Elsevier, vol. 105(3), pages 523-541.
    18. Byomakesh Debata & Jitendra Mahakud, 2018. "Interdependence between Monetary Policy and Stock Liquidity: A Panel VAR Approach," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 12(4), pages 387-413, November.
    19. 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.
    20. Jinliang Li, 2016. "When noise trading fades, volatility rises," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 475-512, October.

    More about this item

    Keywords

    bid-ask spread; depth; liquidity; price impact; REIT; spread; tightness;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:24694. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.