The Changing Asymmetric Information Component of REIT Spreads: A Study of Anticipated Announcements

Posted: 24 Sep 1999

See all articles by Cynthia G. McDonald

Cynthia G. McDonald

University of Missouri at Columbia - Department of Finance

Terry Nixon

Miami University

V. Carlos Slawson, Jr.

Louisiana State University

Abstract

This study examines the risk-compensating behavior of REIT market makers. The bid-ask spread is hypothesized to compensate market makers for three costs: asymmetric information, order processing, and inventory. As the market maker's perceived likelihood of transacting with a better informed individual increases (decreases), the percentage of the spread that is attributed to asymmetric information will increase (decrease). This study examines the asymmetric information components of the bid-ask spread immediately prior to and following REIT dividend announcements and REIT funds from operations announcements during 1995-1996. The asymmetric information component increases the day before and then declines subsequent to dividend announcements of small and equity REITs. Asymmetric information costs increase following funds from operations announcements.

JEL Classification: G12, G14

Suggested Citation

McDonald, Cynthia G. and Nixon, Terry David and Slawson, Jr., V. Carlos, The Changing Asymmetric Information Component of REIT Spreads: A Study of Anticipated Announcements. Available at SSRN: https://ssrn.com/abstract=181629

Cynthia G. McDonald (Contact Author)

University of Missouri at Columbia - Department of Finance ( email )

120 Middlebush Hall
Columbia, MO 65211
United States
(573) 882-0638 (Phone)
(573) 884-6296 (Fax)

Terry David Nixon

Miami University ( email )

Oxford, OH 45056
United States

V. Carlos Slawson, Jr.

Louisiana State University ( email )

E. J. Ourso College of Business
Department of Finance
Baton Rouge, LA 70803-6308
United States
225-578-6291 (Phone)

HOME PAGE: http://www.lsu.edu/business/finance/profile-viewer.php?un=cslawson

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,195
PlumX Metrics