Reits and Market Microstructure: A Comprehensive Analysis of Market Quality

Abstract

This study analyzes the market quality differences, in terms of liquidity and volatility, between Real Estate Investment Trusts (REITs) and common stocks. The 2008 financial crisis has significantly influenced the market quality for REITs. Our findings reveal intraday patterns indicating a lower liquidity for REITs than other common stocks for the pre-crisis period. This relationship reverses during the post-crisis period with REITs becoming more liquid than non-REITs. We also show that REITs have higher price volatility. Further, we document that post-crisis trading interest in REITs has increased significantly as reflected by increased volume, number of trades and number of quotes.

Keywords: REIT, Market Microstructure, Liquidity, Volatility, Financial Crisis

JEL Classification: G14, R33