The Changing Asymmetric Information Component of REIT Spreads: A Study of Anticipated Announcements

  • Cynthia G. McDonald
  • Terry D. Nixon
  • V. Carlos Slawson
Article

DOI: 10.1023/A:1007829405545

Cite this article as:
McDonald, C.G., Nixon, T.D. & Slawson, V.C. The Journal of Real Estate Finance and Economics (2000) 20: 195. doi:10.1023/A:1007829405545

Abstract

This study examines the risk-compensating behavior of REIT market makers. The bid-ask spread is hypothesized to compensate market makers for three costs: asymmetric information, order processing, and inventory. As the market maker's perceived likelihood of transacting with a better-informed individual increases (decreases), the percentage of the spread that is attributed to asymmetric information will increase (decrease). This study examines the asymmetric information component of the bid-ask spread immediately prior to and following REIT dividend announcements and REIT funds from operations announcements during 1995 and 1996. The asymmetric information component increases the day before and then declines subsequent to dividend announcements of small and equity REITs. Asymmetric information costs increase following funds from operations announcements.

REIT dividends funds from operations earnings cash flow market microstructure spread asymmetric information 

Copyright information

© Kluwer Academic Publishers 2000

Authors and Affiliations

  • Cynthia G. McDonald
    • 1
  • Terry D. Nixon
    • 2
  • V. Carlos Slawson
    • 3
  1. 1.Department of Finance, College of BusinessUniversity of Missouri–ColumbiaColumbia
  2. 2.Kelley School of BusinessIndiana UniversityBloomington
  3. 3.Department of Finance, E.J. Ourso College of Business AdministrationLouisiana State UniversityBaton Rouge

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