Analysis of REIT Ipos Using a Market Microstructure Approach: Anomalous Behavior or Asset Structure

THE J. OF REAL ESTATE FINANCE AND ECONOMICS

Posted: 9 Dec 1996

See all articles by Sanjay B. Varshney

Sanjay B. Varshney

SUNY Institute of Technology at Utica/Rome - School of Management

John L. Glascock

University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies; European Business School

William T. Hughes Jr.

MIT Realty Advisors

Abstract

In this research, we examine and present new evidence on the market activity following the Initial Public Offering (IPO) of a Real Estate Investment Trust (REIT) using microstructure data. We analyze the bid-ask spread differences for REIT securities compared to common stocks and closed-end funds for all IPOs between 1985 and 1988. Our results show that REITs, as a whole sample, experience significantly greater bid-ask spreads immediately following the IPO compared to common stocks and funds. However, this outcome is driven by the equity REIT sample, with the mortgage REIT sample having significantly smaller bid-ask spreads. This is in contrast to the evidence documented by Nelling, Mahoney, Hildebrand, and Goldstein [1995]. We attribute our result to the underlying asset structure (e.g. equity, hybrid, mortgage portfolios) of the various REITs. Overall, however, we find that bid-ask spreads for REITs are similar to those of common stock when both asset structure and traditional determinants of the spread (share price, trade volume, and returns variance) are considered.

JEL Classification: G32

Suggested Citation

Varshney, Sanjay B. and Glascock, John L. and Hughes, William T., Analysis of REIT Ipos Using a Market Microstructure Approach: Anomalous Behavior or Asset Structure. THE J. OF REAL ESTATE FINANCE AND ECONOMICS. Available at SSRN: https://ssrn.com/abstract=7966

Sanjay B. Varshney (Contact Author)

SUNY Institute of Technology at Utica/Rome - School of Management ( email )

Utica, NY 13504
United States

John L. Glascock

University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies ( email )

Storrs, CT 06269
United States

European Business School ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany

William T. Hughes

MIT Realty Advisors ( email )

250 Australian Avenue South Suite 400
407-820-1300 (Phone)
407-832-1622 (Fax)

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