| The Journal of Real Estate Finance and Economics | |
| Volume 20, Issue 2, Article 6 (Abstract) | |
| Title: | The Changing Asymmetric Information Component of REIT Spreads: A Study of Anticipated Announcements |
| Author: | Cynthia G. McDonald, Terry D. Nixon and V. Carlos Slawson, Jr. |
| 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 components of the bid-ask spread immed iately prior to and following REIT devidend announcements and REIT funds from operations announcements during 1995-1996. The asymmetric information component increases the day before and then declines subsequent to dividend announcements of small and equi ty REITs. Asymmetric information costs increase following funds from operations announcements. |
| Keywords: | REIT, dividends, funds from operations, earnings, cash flow, market microstructure, spread, asymmetric information |