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Constrained Asset Prices

68 Pages Posted: 11 Nov 2016  

Jordan Martel

University of Colorado at Boulder, Leeds School of Business, Department of Finance, Students

Edward Dickersin Van Wesep

University of Colorado at Boulder - Department of Finance

Date Written: November 10, 2016

Abstract

We develop a model of asset pricing in which buyers are either unable or unwilling to buy an asset at a price substantially above its price in recent transactions. This constraint could result from legal restrictions on appraisals, behavioral preferences, or agency problems. The model features momentum, differential pricing for identical assets, buyers' and sellers' markets, and associations between price appreciation, volume, and liquidity. We apply the model to the market for residential real estate, in which a bank's willingness to lend for a home purchase is limited by the appraisal, which is, in turn, generated by recent transaction prices of similar properties. We confirm all six predictions of the model, none of which hold in the stock market, which is not subject to this constraint.

Keywords: Momentum, Asset Pricing Anomalies, Real Estate, Appraisals

JEL Classification: G11, R30

Suggested Citation

Martel, Jordan and Van Wesep, Edward Dickersin, Constrained Asset Prices (November 10, 2016). Available at SSRN: https://ssrn.com/abstract=2867730

Jordan Martel

University of Colorado at Boulder, Leeds School of Business, Department of Finance, Students ( email )

Campus Box 419
Boulder, CO
United States

Edward Dickersin Van Wesep (Contact Author)

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States

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