Assessing Proxies for Market Prices of Thinly Traded Assets with Scheduled Cash Flows

37 Pages Posted: 5 Oct 2022

See all articles by Wally Boudry

Wally Boudry

Southern Methodist University (SMU) - Real Estate, Insurance, & Business Law Department

Crocker Herbert Liu

Cornell University - School of Hotel Administration

Tobias Muhlhofer

Southern Methodist University (SMU) - Finance Department

Walter N. Torous

Massachusetts Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: October 4, 2022

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.

Suggested Citation

Boudry, Wally and Liu, Crocker Herbert and Muhlhofer, Tobias and Torous, Walter N., Assessing Proxies for Market Prices of Thinly Traded Assets with Scheduled Cash Flows (October 4, 2022). MIT Center for Real Estate Research Paper No. 22/09, SMU Cox School of Business Research Paper No. 22-21, Available at SSRN: https://ssrn.com/abstract=4237101 or http://dx.doi.org/10.2139/ssrn.4237101

Wally Boudry

Southern Methodist University (SMU) - Real Estate, Insurance, & Business Law Department ( email )

United States

Crocker Herbert Liu

Cornell University - School of Hotel Administration ( email )

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

Tobias Muhlhofer (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

Walter N. Torous

Massachusetts Institute of Technology ( email )

Center for Real Estate and Sloan School
Cambridge, MA 02138
United States

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