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Commonality in Liquidity and Real Estate Securities

47 Pages Posted: 10 May 2014  

Martin Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM); University of Aberdeen - Business School; Swiss Finance Institute; University of Geneva - Geneva Finance Research Institute

Anjeza Kadilli

University of Geneva, School of Economics and Management

Reka Kustrim

University of Geneva

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Date Written: May 5, 2014

Abstract

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 also find 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

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

Martin Edward Ralph Hoesli

University of Geneva - Geneva School of Economics and Management (GSEM) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom
+41 22 379 8122 (Phone)
+41 22 379 8104 (Fax)

Swiss Finance Institute ( email )

24 rue du Général-Dufour
Geneva, CH - 1211
Switzerland

University of Geneva - Geneva Finance Research Institute ( email )

Geneva
Switzerland

Anjeza Kadilli

University of Geneva, School of Economics and Management ( email )

40 bd du Pont-d'Arve
Geneva 4, CH-1211
Switzerland
0041 22 379 82 75 (Phone)
0041 22 379 82 93 (Fax)

HOME PAGE: http://www.unige.ch/ses/dsec/staff/assistants/Kadilli-Anjeza.html

Reka Kustrim (Contact Author)

University of Geneva ( email )

102 Bd Carl-Vogt
Genève, CH - 1205
Switzerland

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