The purpose of this paper is to study the European REOC and REIT liquidity and performance, focusing on the potential differences in REOC and REIT characteristics.
The REIT index is comprised of 37 and REOC (non-REIT) index of 41 real estate equities.
REIT, REOC and European benchmark stock index development is graphed (Figure 1).
As observable in the graph (Figure 2), a clear pattern of cross-correlation between REIT and REOC returns is found; it seems that the highest correlation (0.
After observing the lead-lag relationship between REIT and REOC returns, the cross-correlation between REOCs and other benchmark equities was also tested.
Figures 3 and 4 demonstrate the relationship between REOC and REIT stock market development and the changes in real estate stock liquidity as measured by euro trading volume.
To further study the liquidity characteristics of real estate stocks, the effects of general market volatility on changes in REIT and REOC stock liquidity were analyzed (Figure 7).
A potential cross-correlation pattern among assets was tested: As a result, the daily REOC returns were discovered to lead the daily REIT returns by one day.
Excluding the differing turnover ratios, REOC and REIT liquidity patterns per se were somewhat similar by nature.
Moreover, of interest is to study the potential implications of the structural differences between the two: REOCs are free to invest their assets as best deemed, whereas the distribution requirements of REITs make internal growth rather challenging.
Thus, the liquidity characteristics of European REITs and REOCs, and possible differences therein, are addressed in the paper.