The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Changes in REIT Liquidity 1990-94: Evidence from Intra-day Transactions
Vijay Bhasin, Rebel Cole, and Joseph K. Kiely

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.

Keywords: Bid-ask spread, liquidity, REIT

Full paper (328 KB PDF) | Full paper (508 KB Postscript)

Home | Economic research and data | FR working papers | FEDS | 1996 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: July 16, 1997