Liquidity Dynamics between REIT and Property Markets

59 Pages Posted: 7 Feb 2014 Last revised: 20 Aug 2014

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Maggie Rong Hu

Chinese University of Hong Kong

Date Written: April 15, 2014

Abstract

This paper investigates the relationship between the liquidity of the real estate property market and that of the REIT market from the perspective of liquidity dynamics and transformation. Our results indicate that there is a lead-lag relationship between the liquidity of these two markets. The Granger Causality test shows that property market liquidity leads that of the REIT market. In addition, returns in the property market have a causal effect on the liquidity and returns of the REIT market. We estimate VAR models and compute impulse response functions to examine the dynamics of the cross-market relationships in liquidity and return between the two markets. The impulse responses show that REIT liquidity responds to property market liquidity, especially after the structure change in the REIT industry in the early 1990s. Our results also demonstrate that shocks to macroeconomic variables have significant effects on the liquidity of the two markets. Overall, our study sheds light on the contemporaneous commonality between the liquidity of the unsecuritized property market and that of the securitized REIT market.

Keywords: real estate investment trust, liquidity, property market, VAR model

JEL Classification: G1, G11, R33

Suggested Citation

Agarwal, Sumit and Hu, Maggie Rong, Liquidity Dynamics between REIT and Property Markets (April 15, 2014). 27th Australasian Finance and Banking Conference 2014 Paper. Available at SSRN: https://ssrn.com/abstract=2391025 or http://dx.doi.org/10.2139/ssrn.2391025

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Maggie Rong Hu (Contact Author)

Chinese University of Hong Kong ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong, N.T.
Hong Kong

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