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Spatial Asset Pricing: A First Step

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  • Ortalo-Magné, François
  • Prat, Andrea

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 dinance (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).

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 7842.

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Date of creation: May 2010
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Handle: RePEc:cpr:ceprdp:7842

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Related research

Keywords: asset pricing; real estate; urban economics;

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References

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  1. Englund, Peter & Hwang, Min & Quigley, John M., 2002. "Hedging Housing Risk," Berkeley Program on Housing and Urban Policy, Working Paper Series qt06t5d6v0, Berkeley Program on Housing and Urban Policy.
  2. Hilber, Christian A.L., 2005. "Neighborhood externality risk and the homeownership status of properties," Journal of Urban Economics, Elsevier, vol. 57(2), pages 213-241, March.
  3. Campbell, Sean D. & Davis, Morris A. & Gallin, Joshua & Martin, Robert F., 2009. "What moves housing markets: A variance decomposition of the rent-price ratio," Journal of Urban Economics, Elsevier, vol. 66(2), pages 90-102, September.
  4. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
  5. Kahn Matthew E., 1995. "A Revealed Preference Approach to Ranking City Quality of Life," Journal of Urban Economics, Elsevier, vol. 38(2), pages 221-235, September.
  6. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2006. "Why Has House Price Dispersion Gone Up?," NBER Working Papers 12538, National Bureau of Economic Research, Inc.
  7. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2010. "Winners and Losers in House Markets," Working Papers 2010-5, Central Bank of Cyprus.
  8. François Ortalo-Magné & Andrea Prat, 2005. "The Political Economy of Housing Supply," Levine's Bibliography 122247000000000954, UCLA Department of Economics.
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Citations

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Cited by:
  1. Jonathan Halket, 2009. "Home Ownership, Savings and Mobility Over The Life Cycle," 2009 Meeting Papers 295, Society for Economic Dynamics.
  2. de Bandt, O. & Barhoumi, K. & Bruneau, C., 2010. "The international transmission of house price shocks," Working papers 274, Banque de France.
  3. Paciorek, Andrew & Sinai, Todd, 2012. "Does home owning smooth the variability of future housing consumption?," Journal of Urban Economics, Elsevier, vol. 71(2), pages 244-257.
  4. Todd Sinai, 2012. "House Price Moments in Boom-Bust Cycles," NBER Chapters, in: Housing and the Financial Crisis, pages 19-68 National Bureau of Economic Research, Inc.
  5. Frame, David, 2013. "Saving and consumption in cities," Journal of Urban Economics, Elsevier, vol. 73(1), pages 111-124.
  6. Ortalo-Magné, François & Prat, Andrea, 2011. "On the Political Economy of Urban Growth: Homeownership versus Affordability," CEPR Discussion Papers 8243, C.E.P.R. Discussion Papers.
  7. Dröes, Martijn I. & Hassink, Wolter H.J., 2013. "House price risk and the hedging benefits of home ownership," Journal of Housing Economics, Elsevier, vol. 22(2), pages 92-99.

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