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Back from Beyond the Bid-Ask Spread: Perspectives on Liquidity

Author

Listed:
  • Gianluca Marcato

    (Department of Real Estate & Planning, University of Reading)

  • Charles Ward

    (ICMA Centre, University of Reading)

Abstract

Research into the topic of liquidity has greatly benefited from the availability of data. Although bid-ask spreads were inaccessible to researchers, Roll (1984) provided a conceptual model that estimated the effective bid-ask prices from regular time series data, recorded on a daily or longer interval. Later data availability improved and researchers were able to address questions regarding the factors that influenced the spreads and the relationship between spreads and risk, return and liquidity. More recently transaction data have been used to measure the effective spread and researchers have been able to refine the concepts of liquidity to include the impact of transactions on price movements (Clayton and McKinnon, 2000) on a trade-by-trade analysis. This paper aims to use techniques that combine elements from all three approaches and, by studying US data over a relatively long time period, to throw light on earlier research as well as to reveal the changes in liquidity over the period controlling for extraneous factors such as market, age and size of REIT. It also reveals some comparable results for the UK market over the same period.

Suggested Citation

  • Gianluca Marcato & Charles Ward, 2006. "Back from Beyond the Bid-Ask Spread: Perspectives on Liquidity," Real Estate & Planning Working Papers rep-wp2006-15, Henley Business School, University of Reading.
    • Handle: RePEc:rdg:repxwp:rep-wp2006-15
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    File URL: http://www.henley.reading.ac.uk/rep/fulltxt/1506.pdf
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    References listed on IDEAS

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    Keywords

    Liquidity; REIT;

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