Spatial Asset Pricing: A First Step

49 Pages Posted: 30 Nov 2010

See all articles by François Ortalo-Magné

François Ortalo-Magné

Wisconsin School of Business; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Andrea Prat

Columbia Business School - Finance and Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: April 2010

Abstract

People choose where to live and how much to invest in housing. Traditionally, the first decision has been the domain of spatial economics, while the second has been analyzed in finance. Spatial asset pricing is an attempt to combine equilibrium concepts from both disciplines. In the finance context, we show how spatial decisions can be framed as an expanded portfolio problem. Within spatial economics, we identify the consequences of hedging motives for location decisions. We characterize a number of observable deviations from standard predictions in finance (e.g. the definition of the relevant market portfolio for the pricing of risk includes homeownership rates) and in spatial economics (e.g. hedging considerations and the pricing of risk affect the geographic allocation of human capital).

Suggested Citation

Ortalo-Magne, Francois and Prat, Andrea, Spatial Asset Pricing: A First Step (April 2010). LSE STICERD Research Paper No. TE546. Available at SSRN: https://ssrn.com/abstract=1717451

Francois Ortalo-Magne (Contact Author)

Wisconsin School of Business ( email )

4300 Grainger Hall
975 University Avenue
Madison, WI 53706-1323
United States
608-262-7867 (Phone)
608-262-7867 (Fax)

HOME PAGE: http://francois.marginalq.com

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Andrea Prat

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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