Real Estate Investment Trusts, Small Stocks, and Bid-Ask Spreads

Posted: 25 Aug 1998

See all articles by Edward Nelling

Edward Nelling

Drexel University - Department of Finance

Michael A. Goldstein

Babson College - Finance Division

James M. Mahoney

Federal Reserve Bank of New York

Terry L. Hilderbrand

affiliation not provided to SSRN

Abstract

This study examines the liquidity of real estate investment trusts (REITs), as measured by their bid-ask spread. We find that REIT spreads have increased over the period 1986-1990, are inversely related to market capitalization, and are similar in magnitude to spreads on other stocks of comparable size. Analysis of variance tests indicate that REIT spreads are similar across equity, mortgage, and hybrid asset types. Multivariate regression results indicate that market capitalization is the primary determinant of REIT bid-ask spreads, and spreads are larger for NASDAQ REITs than for NYSE REITs. The regression results also indicate that spreads are lower for equity REITs than for mortgage or hybrid REITs, and are inversely related to the fraction of the REIT's shares held by institutional investors. The similarity between REIT spreads and those of other common stocks holds in both bull and bear real estate markets and suggests that, from a liquidity perspective, REITs are similar to other common stocks.

JEL Classification: G11

Suggested Citation

Nelling, Edward F. and Goldstein, Michael A. and Mahoney, James M. and Hilderbrand, Terry L., Real Estate Investment Trusts, Small Stocks, and Bid-Ask Spreads. Real Estate Economics, Vol. 23, No. 1, Spring 1995. Available at SSRN: https://ssrn.com/abstract=5833

Edward F. Nelling (Contact Author)

Drexel University - Department of Finance ( email )

LeBow College of Business
Philadelphia, PA 19104
United States
215.895.2117 (Phone)
215.895.2955 (Fax)

Michael A. Goldstein

Babson College - Finance Division ( email )

320 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-4402 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://faculty.babson.edu/goldstein/

James M. Mahoney

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-8910 (Phone)
212-720-1577 (Fax)

Terry L. Hilderbrand

affiliation not provided to SSRN

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