Does the Asset Pricing Premium Reflect Asymmetric or Incomplete Information?

Crocker Liu, Adam Nowak and Patrick Smith
Additional contact information
Crocker Liu: Cornell University
Adam Nowak: West Virginia University
Patrick Smith: San Diego State University

No 18-06, Working Papers from Department of Economics, West Virginia University

Abstract: We develop a framework for using text as data in asset pricing models. We use the framework to test whether real estate agents exploit their informational advantage to sell properties they own for a premium. Consistent with the previous literature, baseline estimates that exclude textual information indicate agents sell their own house at a 3 to 4 percent premium in both Phoenix, AZ and Atlanta, GA. However, this premium dissipates when textual information is included. The results suggest that the baseline estimates suffer from an omitted variable bias, which previous studies incorrectly ascribe to market distortions associated with asymmetric information.

Keywords: Asset pricing; Asymmetric Information; Omitted variable bias; Textual analysis (search for similar items in EconPapers)
JEL-codes: D82 G14 R00 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2018-04-26
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