Authors:
Bartley R. Danielsen
David M. Harrison

Start Page: 329
End Page: 344
Volume: 13
Issue Number: 4
Year: 2007
Publication: Journal of Real Estate Portfolio Management

Abstract: This paper examines the degree to which property type diversification affects the liquidity of the market for real estate investment trusts. The findings reveal that investments in financial assets are correlated with higher spreads, effective spreads, and trading volumes. The findings also reveal that underlying property types affect liquidity measures. Generally, more
volatile underlying property types are reflected in larger spreads, effective spreads, and adverse selection measures. Diversification across either the mortgage equity or property type spectrum is accompanied by reduced liquidity, a result at odds with diversification studies that examine diversification across SIC codes. The evidence suggests that within-industry diversification may denote the existence of hard-to-value managerial redeployment options, which are difficult to value and are penalized by the market in the form of reduced market liquidity.