Pricing of Commercial Real Estate Securities during the 2007-2009 Financial Crisis

77 Pages Posted: 8 Sep 2009 Last revised: 29 Jul 2011

See all articles by Joost Driessen

Joost Driessen

Tilburg University - Center and Faculty of Economics and Business Administration; Tilburg University - Center for Economic Research (CentER)

Otto Van Hemert

Man AHL

Date Written: February 11, 2011

Abstract

We study the relative and absolute pricing of CMBX contracts (commercial real estate derivatives) during the recent financial crisis. Using a structural CMBX pricing model we find little systematic mispricing relative to REIT equity and options. We do find short-term deviations from this relative pricing relationship that are statistically and economically significant. In particular, the CMBX market temporarily overreacts to news announcements. We provide evidence that this temporary mispricing is caused by price pressure due to hedging activities. Finally, an absolute pricing analysis provides no substantial evidence that CMBX contracts traded at fire sale levels during the crisis.

Keywords: Mortgage, CMBS, CMBX, REIT, Market Efficiency, Financial Crisis, Commercial Real Estate

JEL Classification: G12, G13, G14, G21

Suggested Citation

Driessen, Joost and van Hemert, Otto, Pricing of Commercial Real Estate Securities during the 2007-2009 Financial Crisis (February 11, 2011). Available at SSRN: https://ssrn.com/abstract=1470249 or http://dx.doi.org/10.2139/ssrn.1470249

Joost Driessen

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Otto Van Hemert (Contact Author)

Man AHL ( email )

Riverbank House
2 Swan Lane
London, EC4R 3AD
United Kingdom

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