This study examines the liquidity of Real Estate Investment Trusts (RE
ITs), as measured by their bid-ask spread. We find that REIT spreads h
ave increased over the period 1986-1990, are inversely related to mark
et capitalization, and are similar in magnitude to spreads on other st
ocks of comparable size. Analysis of variance tests indicate that REIT
spreads are similar across equity, mortgage and hybrid asset types. M
ultivariate regression results indicate that market capitalization is
the primary determinant of REIT bid-ask spreads, and spreads are large
r for National Association of Securities Dealers Automated Quotations
(NASDAQ) REITs than for New York Stock Exchange (NYSE) REITs. The regr
ession results also indicate that spreads are lower for equity REITs t
han for mortgage or hybrid REITs, and are inversely related to the fra
ction of the REIT's shares held by institutional investors. The simila
rity between REIT spreads and those of other common stocks holds in bo
th bull and bear real estate markers and suggests that, from a liquidi
ty perspective, REITs are similar to other common stocks.