Changes in Reit Liquidity 1990-94: Evidence from Intra-Day Transactions

34 Pages Posted: 26 Apr 1998 Last revised: 18 Mar 2009

See all articles by Rebel A. Cole

Rebel A. Cole

Florida Atlantic University

Vijay Bhasin

Countrywide Financial Corporation

Joseph K. Kiely

East Carolina University

Date Written: May 1996

Abstract

In this study, we use data on intra-day transactions to analyze whether REIT liquidity as measured by the bid-ask spread changed from 1990 to 1994, a period during which the industry's market capitalization increased from $9 billion to $45 billion. We find that REIT spreads narrowed significantly. We then use a variation of the empirical model proposed by Stoll (1978) to analyze the determinants of percentage spreads including whether spreads are determined by return variability, share price, exchange listing, and asset type. We find strong support for Stoll's model, in that return variance and share price are the primary determinants of percentage spreads in both periods analyzed. This suggests that the liquidity of REIT securities is similar to that of non-REIT securities with similar prices and return variance. In addition, we find that spreads are wider for REITs trading on NASDAQ. In contrast with an earlier study, we find that market capitalization is not a significant determinant of REIT spreads.

JEL Classification: G11, G23, G32

Suggested Citation

Cole, Rebel A. and Bhasin, Vijay and Kiely, Joseph K., Changes in Reit Liquidity 1990-94: Evidence from Intra-Day Transactions (May 1996). Board of Governors of the Federal Reserve System Finance and Economics Discussion Series FEDS Paper No. 96-22. Available at SSRN: https://ssrn.com/abstract=7667 or http://dx.doi.org/10.2139/ssrn.7667

Rebel A. Cole (Contact Author)

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

Vijay Bhasin

Countrywide Financial Corporation ( email )

4500 Park Granada
Calabasas, CA 91302
United States

Joseph K. Kiely

East Carolina University ( email )

Greenville, NC 27858
United States

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