Asymmetric or Incomplete Information about Asset Values?

96 Pages Posted: 17 Oct 2018 Last revised: 14 Mar 2019

See all articles by Crocker Herbert Liu

Crocker Herbert Liu

Cornell University - School of Hotel Administration

Adam Nowak

West Virginia University

Patrick S. Smith

San Diego State University

Date Written: March 12, 2019

Abstract

We provide a new framework for using text as data in empirical models. The framework identifies salient information in unstructured text that can control for multidimensional heterogeneity among assets. We demonstrate the efficacy of the framework by re-examining principal-agent problems in residential real estate markets. We show that the agent-owned premiums reported in the extant literature dissipate when the salient textual information is included. The results suggest the previously reported agent-owned premiums suffer from an omitted variable bias, which prior studies incorrectly ascribe to market distortions associated with asymmetric information.

Keywords: Asset pricing, Asymmetric Information, Omitted variable bias, Textual analysis

JEL Classification: D82, G14, R00

Suggested Citation

Liu, Crocker Herbert and Nowak, Adam and Smith, Patrick S., Asymmetric or Incomplete Information about Asset Values? (March 12, 2019). Available at SSRN: https://ssrn.com/abstract=3255636 or http://dx.doi.org/10.2139/ssrn.3255636

Crocker Herbert Liu

Cornell University - School of Hotel Administration ( email )

435B Statler Hall
Ithaca, NY 14853-6902
United States

Adam Nowak

West Virginia University ( email )

PO Box 6025
Morgantown, WV 26506
United States

Patrick S. Smith (Contact Author)

San Diego State University ( email )

5500 Campanile Drive
San Diego, CA 92182-8236
United States

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