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An Examination of Informed Traders and the Market Microstructure of Real Estate Investment Trusts

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Abstract

A significant body of research exists documenting that REITs perform differently from other types of equity securities, although the reasons for these differences are unclear. This study examines the intraday trading behavior of Real Estate Investment Trusts (REITs). Specifically, intraday REIT returns, volume, trading activity, and bid/ask spread are examined in an attempt to better understand the patterns of intraday information flow for a sample of REITs trading on the NYSE. After controlling for differences in market capitalization, share price, and institutional holdings, this paper analyzes differences between REITs and non-REITs, and between REITs that are widely held by institutions and those that are not. The results suggest that, as a group, REITs exhibit lower average volumes and number of trades than do similar non-REITs. In addition, the findings suggest that mortgage REITs trade at spreads that are wider. Surprisingly, the analysis of institutional ownership suggests that equity REITs that are widely held by institutions exhibit the largest divergence from non-REITs in terms of both intraday trading activity and volume, but at the same time trade closer to non-REITs in terms of bid/ask spread. Overall, the results of this study confirm that REITs are treated differently by investors than similar non-REITs, and the institutional ownership findings suggest that trading activity is less important as a determinant of REIT performance than is the level of institutional ownership.

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  • Scott D. Below & Joseph K. Kiely & Willard McIntosh, 1995. "An Examination of Informed Traders and the Market Microstructure of Real Estate Investment Trusts," Journal of Real Estate Research, American Real Estate Society, vol. 10(3), pages 335-361.
    • Handle: RePEc:jre:issued:v:10:n:3:1995:p:335-361
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    1. Wood, Robert A & McInish, Thomas H & Ord, J Keith, 1985. "An Investigation of Transactions Data for NYSE Stocks," Journal of Finance, American Finance Association, vol. 40(3), pages 723-739, July.
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    Cited by:

    1. Vijay Bhasin & Rebel A. Cole & Joseph K. Kiely, "undated". "Changes in REIT Liquidity 1990-94: Evidence from Intra-day Transactions," Finance and Economics Discussion Series 1996-22, Board of Governors of the Federal Reserve System (U.S.), revised 10 Dec 2019.
    2. Siti Marsila Mhd Ruslan, 2019. "The Financial Performance of Islamic Real Estate Investment Trusts (REITs) in Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 15(1), pages 191-220.
    3. Frank Gyamfi-Yeboah & Alan Ziobrowski & Philip Seagraves, 2014. "Institutional Ownership and the Dynamics of Trading Volume around FFO Announcements," The Journal of Real Estate Finance and Economics, Springer, vol. 49(1), pages 73-90, July.
    4. Paul Anglin & Robert Edelstein & Yanmin Gao & Desmond Tsang, 2011. "How Does Corporate Governance Affect the Quality of Investor Information? The Curious Case of REITs," Journal of Real Estate Research, American Real Estate Society, vol. 33(1), pages 1-24.
    5. Daniel Broxterman & Tingyu Zhou, 2023. "Information Frictions in Real Estate Markets: Recent Evidence and Issues," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 203-298, February.
    6. Dirk Brounen & Piet Eichholtz & David Ling, 2009. "The Liquidity of Property Shares: An International Comparison," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 37(3), pages 413-445, September.
    7. Susanne Cannon & Rebel Cole, 2011. "Changes in REIT Liquidity 1988–2007: Evidence from Daily Data," The Journal of Real Estate Finance and Economics, Springer, vol. 43(1), pages 258-280, July.
    8. Elizabeth Devos & Erik Devos & Seow Eng Ong & Andrew C. Spieler, 2019. "Information Asymmetry and REIT Capital Market Access," The Journal of Real Estate Finance and Economics, Springer, vol. 59(1), pages 90-110, July.
    9. Benjamin Blau & Jared Egginton & Matthew Hill, 2016. "REITs and market friction," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 1-24, January.
    10. Scott D. Below & Joseph K. Kiely & Willard McIntosh, 1996. "REIT Pricing Efficiency; Should Investors Still Be Concerned?," Journal of Real Estate Research, American Real Estate Society, vol. 12(3), pages 397-412.
    11. Gianluca Marcato, 2018. "Liquidity Pricing of Illiquid Assets," ERES eres2018_215, European Real Estate Society (ERES).
    12. Benjamin Blau & Jared F. Egginton & Matthew Hill, 2016. "REITs and market friction," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 1-24, January.
    13. SeungHan Ro & Paul Gallimore, 2014. "Real Estate Mutual Funds: Herding, Momentum Trading and Performance," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(1), pages 190-222, March.

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    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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