Property market liquidity and REIT liquidity

Abstract

This study examines the asset–stock liquidity relationship for firms with location‐specific assets. Using a sample of real estate investment trusts (REITs), we extend the concept of asset liquidity to include information based on local property market turnover. Our findings confirm that holding more cash increases REIT stock liquidity. More importantly, we find a positive relation between property market liquidity and REIT stock liquidity. This relation is stronger for REITs with lower growth opportunities, less information advantage, and greater financial constraints. Our findings also provide evidence that managers can actively influence stock liquidity through asset structure.

The influence of financial indicators on liquidity: An empirical analysis of profitability, leverage, and fund age

“…Subsequent research focusing on asset liquidity and stock liquidity confirms that holding more cash increases the liquidity of REIT stocks (Downs & Zhu, 2022). There is also a positive correlation between the liquidity of the real estate market and the liquidity of REIT shares.…”

Macroeconomic Uncertainty and Predictability of Real Estate Returns: The Impact of Asset Liquidity

“…Moreover, while it is well established that publicly traded assets are significantly more liquid than their private market counterparts, some studies find evidence of a degree of commonality in liquidity between public and private real estate markets. For example, Downs and Zhu (2022) find a positive relation between property market liquidity and REIT stock liquidity, while Hoesli, Kadilli, and Reka (2017) show that partial liquidity comovement is manifested during bad market conditions. 5…”