The Return on Secondary Market Trades of Open-end Real Estate Funds in Liquidation

As a result of the liquidity crisis in October 2008, 18 open-end real estate funds with a total volume of €26 billion in assets under management had to be liquidated. Many shareholders decided to sell their shares on the secondary market instead of awaiting the iterative liquidation of the fund assets. This paper estimates and explains the returns of these secondary market trades based on a unique dataset comprising secondary market prices and individual fund characteristics. The estimated returns exhibit an enormous variation across the funds and transaction dates. A subsiding panel regression demonstrates that the return variation can be attributed to the price-discount at which the shares traded on the secondary market and the composition of the remaining fund assets.