Liquidity Risk Premium of the Real Estate Stock Market:A multi-country analysis

• Main Authors: Szu-Han Yeh, 葉思含
• Other Authors: 廖咸興
• Format: Others
• Language: en_US
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/69240062311408389065

碩士 === 國立臺灣大學 === 財務金融學研究所 === 93 === Liquidity risk premium indicates that investors will require higher expected returns for assets with larger liquidity risks. With an efficient market and according to asset pricing theory, stock returns should depend on their exposure to state risk factors, which have pervasive effects on the investors’ welfare. Liquidity seems to be a good indicator. Liquidity generally denotes the ability to trade large quantities quickly, at low cost, and without moving the price. (Pastor and Stambaugh, (2003, JPE)). Liquidity''s micro-structure has been extensively investigated in the literature, however, not until the study by Chordia et al. (2000, JFE), has the macro-structure of liquidity become noticed by the academia. Liquidity has long played an important role in the pricing of securitized real estate assets such as REITs and stocks of real estate companies, but few reports empirically investigate the features of real estate stock liquidity and their effect on return. Furthermore, few studies have used a multi-country framework, so that the role of liquidity across countries remains unknown. To fill the gaps in knowledge and the related literature, this study utilizes the DataSstream global real estate index of 22 countries to empirically test for the existence of a liquidity risk factor in both single- and multi-country frameworks, and to examine its role in real estate asset pricing. We also use non-US real estate data to confirm the relation between liquidity and stock return. In addition, this multi-country analysis compares the role of liquidity in the real estate market across countries. The findings are expected to have some influence in both real estate asset pricing and international real estate stock investment.