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An Examination of Macroeconomic Effects on the Liquidity of REITs

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  • John Glascock
  • Ran Lu-Andrews

Abstract

In this research, we investigate the effects of changes in and levels of selected macroeconomic variables on the liquidity of Real Estate Investment Trust (REIT, henceforth) stocks. We study in particular REIT market trading liquidity and REIT funding liquidity. We use debt service coverage ratios, loan-to-value ratios and the number of loans on commercial commitments as proxies for the funding liquidity of REITs. We use Amihud Illiquidity measurement and Turnover Ratio measurement to estimate REIT market trading liquidity. Our results are fourfold: one, funding liquidity is influenced by changes in macroeconomic factors; two, macroeconomic effects are different across phases of the business cycle; three, funding liquidity is significantly positively related to REIT market liquidity (this is supportive of Brunnermeier and Petersen’s Review of Financial Studies, 22:2201–2238 ( 2009 ) findings); and four, these effects vary across economic regimes. A key outcome of this work is that increases in debt to equity reduce market liquidity for REIT stocks. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • John Glascock & Ran Lu-Andrews, 2014. "An Examination of Macroeconomic Effects on the Liquidity of REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 49(1), pages 23-46, July.
    • Handle: RePEc:kap:jrefec:v:49:y:2014:i:1:p:23-46
    DOI: 10.1007/s11146-013-9406-3
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    References listed on IDEAS

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    1. Wayne E. Ferson & Campbell R. Harvey, 1999. "Conditioning Variables and the Cross Section of Stock Returns," Journal of Finance, American Finance Association, vol. 54(4), pages 1325-1360, August.
    2. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
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    7. Don Bredin & Gerard O’Reilly & Simon Stevenson, 2007. "Monetary Shocks and REIT Returns," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 315-331, October.
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    Cited by:

    1. Chia-Cheng Chen & Chia-Li Tai & Yi-Sheng Liu, 2020. "Illiquidity Premium and Monetary Conditions in Emerging Markets: An Empirical Examination of Taiwan Stock Markets," International Journal of Economics and Financial Issues, Econjournals, vol. 10(1), pages 109-117.
    2. Thomas Paul & Thomas Walther & André Küster-Simic, 2022. "Empirical analysis of the illiquidity premia of German real estate securities," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(2), pages 203-260, June.
    3. Chongyu Wang & Jeffrey P. Cohen & John L. Glascock, 2019. "Geographic Proximity and Competition for Scarce Capital: Evidence from U.S. REITs," International Real Estate Review, Global Social Science Institute, vol. 22(4), pages 535-570.
    4. Pawan Jain & Mark Sunderman & K. Janean Westby-Gibson, 2017. "REITs and Market Microstructure: A Comprehensive Analysis of Market Quality," Journal of Real Estate Research, American Real Estate Society, vol. 39(1), pages 65-98.

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