Geographically Overlapping Real Estate Assets, Liquidity Spillovers, and Liquidity Multiplier Effects
32 Pages Posted: 18 Apr 2018 Last revised: 23 May 2018
Date Written: April 1, 2018
When liquidity providers for one asset obtain information from other asset prices, this may magnify the (upward or downward) comovement of asset liquidity. It also may yield an illiquidity multiplier. We empirically test the magnitude of this illiquidity multiplier for a sample of U.S. equity real estate investment trusts (REITs) using spatial autoregressive models. We find significant liquidity spillovers among REITs with geographically overlapping real estate holdings. Our findings suggest that the multiplier effect impacts neighboring REITs through cross-asset learning about firm fundamentals. This effect is stronger during market turmoil, after the Decimalization (a source of exogenous variation), and for REITs headquartered in MSAs with less information asymmetry.
Keywords: Liquidity Spillovers, Liquidity Multiplier, Real Estate
JEL Classification: G01, G11, G14
Suggested Citation: Suggested Citation