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 industrys 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 Stolls 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 percentage 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 percentage spreads.

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