Impact of futures trade on the informational efficiency of U.S. REIT market

Kwangwon Ahn, Hanwool Jang, Minhyuk Jeong, Sungbin Sohn*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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Abstract

This paper studies the impact of futures trading on market efficiency and price discovery in the US REITs market. First, we present inconclusive evidence about efficiency improvement in the US REIT spot market following the introduction of the futures trading. To explore the interplay between spot and futures markets, we analyze their price discovery roles and discover that, unlike in the stock and bond markets, the spot predominantly exhibits price leadership in the US REITs market despite the growing market size of futures. We find evidence that the limited price discovery role of futures is associated with its growing speculative demand outweighing hedging pressure. Findings suggest that policymakers should carefully monitor the investor trading motives in the US REITs market and revise market rules to enhance liquidity, ensuring that the increased liquidity does not primarily stem from heightened speculative demand.
Original languageEnglish
Article number45
Number of pages24
JournalFinancial Innovation
Volume11
DOIs
Publication statusPublished - 14 Jan 2025

Keywords

  • REIT market
  • Market efficiency
  • Price discovery

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