REAL-ESTATE INVESTMENT TRUSTS, SMALL STOCKS AND BID-ASK SPREADS

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.