Journal of Financial Economics · 2019 · 144 citations · 22 references
BusinessFinanceReal EstateFinancial EconomicsReal Estate EconomicsReal Estate InvestmentCapital MarketsFinancial RiskLiquidity RiskMarket LiquidityMarket RiskReal Estate RiskBid-ask Spread AnalysisBid-ask Spread EffectsBid-ask Spread ReactionDifference-in-differencesMarket UncertaintyNatural Experiment EvaluationReal Estate Investment Trusts (Reits)Reit Liquidity
We test the effects of uncertainty on market liquidity using Hurricane Sandy as a natural experiment. Given the unprecedented strength, scale, and nature of the storm, the potential damages of a landfall near the Greater New York area were unpredictable and therefore uncertain. Using a difference-in-differences setting, we compare the market reactions of Real Estate Investment Trusts (REITs) with and without properties in the widely published evacuation zone of New York City prior to landfall. We find relatively less trading and wider bid-ask spreads in affected REITs. The results confirm theory on the detrimental effects of uncertainty on market functioning.
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