Year of Graduation
REITs Liquidity: Russian Peculiarities
Liquidity is one of the most significant factors of the market performance. There are a liquidity premium that investors pay for the more liquid assets, which boost prices and reduce the company’s cost of capital ( Amihud,1986). Another advantage is better market efficiency and fair pricing of the assets, because the more liquid the asset, the more buyers and sellers will trade it, means the more information will be reflected in the price of the asset. Nevertheless, liquidity is still quite an obscure measure to analyze. There is a plenty of liquidity ratios, from bid-ask spread and trading volume to some complicate indicators like Hui-Heubel liquidity ratio, but most of them are inadequate to determine the liquidity level of the asset. The problem is to understand, what liquidity really means. The general view on how to determine liquidity is rather new, and still there’s a lot of papers, which investigates just some aspects of liquidity instead of whole liquidity measurement . At this paper, we study liquidity of REITs. Real Estate Investment Trusts were first created during the 1970 in the USA, and provided some taxation benefits for its owners. Nowadays REITs takes their place as a mechanism, enabling investors, generally institutional, to hold real estate in their portfolios with ability to rapidly exit their investments without sale procedures of the underlying assets. This useful feature forced U.S. REITs market capitalization up to 670 billion $ in 2013 with total amount of 202 trusts. But in Russia, REITs market is negligible and illiquid. Analisys of the USA REITs market will provide liquidity benchmarks, which can be applied for the Russian market in order to make concrete proposals on what should be done for the market growth. Thereby, the object of this research is liquidity of the real estate investment trusts. The subject of the study is improvement of the Russian REITs market. The chief aim of analysis is to provide a reference concerning Russian REIT market development. Purposes of the investigation is to determine the liquidity concept ,create a liquidity measure, and find some explanatory variables for the U.S. market liquidity. The problem hasn’t been thoroughly analyzed due to imperfection of the liquidity measurement, so this paper will be the logical evolution of previous investigations.