Download This PaperAssessing Proxies for Market Prices of Thinly Traded Assets with Scheduled Cash Flows
36 Pages Posted: 8 Nov 2023
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Assessing Proxies for Market Prices of Thinly Traded Assets with Scheduled Cash Flows
Date Written: October 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.
Keywords: Pseudo PricesMarket Price ProxiesCommercial Real EstateCommercial Mortgage-Backed Securities
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Wally Boudry
Southern Methodist University (SMU) - Real Estate, Insurance, & Business Law Department ( email )
United States
Walter Torous
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
100 Main Street
E62-416
Cambridge, MA 02142
United States