Changes in REIT Liquidity 1988-2007: Evidence from Daily Data

39 Pages Posted: 13 Nov 2008 Last revised: 13 Jan 2013

See all articles by Susanne E. Cannon

Susanne E. Cannon

DePaul University Department of Real Estate

Rebel A. Cole

Florida Atlantic University

Date Written: August 22, 2010


In this study, we present new 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 deteriorated during the late 1990s but 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.

Keywords: Bid-Ask Spread, Depth, Liquidity, Price Impact, REIT

JEL Classification: G12, G21, G23, G29

Suggested Citation

Cannon, Susanne E. and Cole, Rebel A., Changes in REIT Liquidity 1988-2007: Evidence from Daily Data (August 22, 2010). Journal of Real Estate Finance and Economics 43, 258 - 280, Available at SSRN:

Susanne E. Cannon

DePaul University Department of Real Estate ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States

Rebel A. Cole (Contact Author)

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)


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