Assessing Proxies for Market Prices of Thinly Traded Assets with Scheduled Cash Flows

Authors

Wally Boudry, Southern Methodist University (SMU) - Real Estate, Insurance, & Business Law DepartmentFollow
Crocker Herbert Liu, Cornell University - School of Hotel AdministrationFollow
Tobias Muhlhofer, Southern Methodist University (SMU) - Finance DepartmentFollow
Walter N. Torous, Massachusetts Institute of Technology (MIT)Follow

Publication Date

10-15-2023

Abstract

Pseudo-market prices of infrequently traded assets with scheduled cash flows - commercial real estate appraisals and matrix prices of commercial mortgage backed securities - are compared against a VAR model to assess the extent to which these widely-used proxies are grounded in economic fundamentals. Property appraisals fail to fully incorporate the economic fundamentals underlying commercial real estate transactions. During the financial crisis, CMBS matrix prices captured underlying economic fundamentals and exhibited little pricing bias. However, matrix prices no longer exhibited such economic discipline after the financial crisis. Incorporating VAR forecasts considerably improves the predictive ability of appraisals and matrix prices.

Document Type

Article

Keywords

Pseudo Prices, Market Price Proxies, Commercial Real Estate, Commercial Mortgage-Backed Securities

Disciplines

Real Estate

DOI

10.2139/ssrn.4627270

Source

SMU Cox: Real Estate (Topic)

Language

English