Assessing proxies for market prices of thinly traded assets with scheduled cash flows

Walter I. Boudry, Crocker H. Liu, Tobias Mühlhofer and Walter N. Torous

Journal of Empirical Finance, 2024, vol. 78, issue C

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.

Keywords: Pseudo prices; Market price proxies; Commercial real estate; Commercial mortgage-backed securities (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:78:y:2024:i:c:s0927539824000343

DOI: 10.1016/j.jempfin.2024.101499

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