47 Pages Posted: 10 May 2014
Date Written: May 5, 2014
We conduct an empirical investigation of the pricing and economic sources of commonality in liquidity in the U.S. REIT market. Taking advantage of the specific characteristics of REITs, we analyze three types of commonality in liquidity: within-asset commonality, cross-asset commonality (with the stock market), and commonality with the underlying property market. We find evidence that the three types of commonality in liquidity are priced in REIT returns but only during bad market conditions. We alsofind that using a linear approach, rather than a conditional, would have underestimated the role of commonality in liquidity risk. This explains (at least partly) the small impact of commonality on asset prices documented in the extant literature. Finally, our analysis of the determinants of commonality in liquidity favors a demand-side explanation.
Keywords: Real Estate Securities; REITs; Commonality in Liquidity; Liquidity Risk; Asset Pricing; Threshold Regression; Panel Data
JEL Classification: G12; G01; G02
Suggested Citation: Suggested Citation
Hoesli, Martin and Kadilli, Anjeza and Kustrim, Reka, Commonality in Liquidity and Real Estate Securities (May 5, 2014). Swiss Finance Institute Research Paper No. 14-30. Available at SSRN: https://ssrn.com/abstract=2434072 or http://dx.doi.org/10.2139/ssrn.2434072