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Do Tax-Deferred Exchanges Impact Purchase Price? Evidence form the Phoenix Apartment Market

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  • Andrew Holmes
  • Barrett A. Slade

Abstract

Many authors have commented on the compliance risk associated with tax-deferred exchanges. However, no published studies explicitly address whether the risks associated with the exchange process impacts the price at which exchanged assets trade. Using a unique data set that separates buy and sell side transactions for non-direct exchanges, this study examines the price impact of tax-deferred exchanges on apartment transactions in the Phoenix, Arizona market. Consistent with the price pressure hypothesis originally developed by Scholes (1972) and Kraus and Stoll (1972), the data show that exchange participants pay an economically significant premium to acquire replacement assets. A conventional hedonic price index is generated to investigate the rational bounds of the exchange premium. While the impact of an exchange is large, the premium is within the rational bounds.

Suggested Citation

  • Andrew Holmes & Barrett A. Slade, 2001. "Do Tax-Deferred Exchanges Impact Purchase Price? Evidence form the Phoenix Apartment Market," ERES eres2001_180, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2001_180
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    References listed on IDEAS

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    1. John M. Clapp & Carmelo Giaccotto & Dogan Tirtiroglu, 1991. "Housing Price Indices Based on All Transactions Compared to Repeat Subsamples," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 270-285.
    2. Scholes, Myron S, 1972. "The Market for Securities: Substitution versus Price Pressure and the Effects of Information on Share Prices," The Journal of Business, University of Chicago Press, vol. 45(2), pages 179-211, April.
    3. Brian D. Kluger & Norman G. Miller, 1990. "Measuring Residential Real Estate Liquidity," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(2), pages 145-159.
    4. Shleifer, Andrei, 1986. " Do Demand Curves for Stocks Slope Down?," Journal of Finance, American Finance Association, vol. 41(3), pages 579-590, July.
    5. Simon, David P., 1994. "Markups, quantity risk, and bidding strategies at treasury coupon auctions," Journal of Financial Economics, Elsevier, vol. 35(1), pages 43-62, February.
    6. Mikkelson, Wayne H. & Partch, M. Megan, 1985. "Stock price effects and costs of secondary distributions," Journal of Financial Economics, Elsevier, vol. 14(2), pages 165-194, June.
    7. Simon, David P., 1994. "Further evidence on segmentation in the treasury bill market," Journal of Banking & Finance, Elsevier, vol. 18(1), pages 139-151, January.
    8. James S. Moore, 1987. "An Investigation of the Major Influences of Residential Liquidity: A Multivariate Approach," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(1), pages 684-703.
    9. J. R. Knight & Jonathan Dombrow & C. F. Sirmans, 1995. "A Varying Parameters Approach to Constructing House Price Indexes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 23(2), pages 187-205.
    10. Kraus, Alan & Stoll, Hans R, 1972. "Price Impacts of Block Trading on the New York Stock Exchange," Journal of Finance, American Finance Association, vol. 27(3), pages 569-588, June.
    11. Dann, Larry Y. & Mayers, David & Raab, Robert Jr., 1977. "Trading rules, large blocks and the speed of price adjustment," Journal of Financial Economics, Elsevier, vol. 4(1), pages 3-22, January.
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    Cited by:

    1. S. Akin & Val Lambson & Grant McQueen & Brennan Platt & Barrett Slade & Justin Wood, 2013. "Rushing to Overpay: Modeling and Measuring the REIT Premium," The Journal of Real Estate Finance and Economics, Springer, vol. 47(3), pages 506-537, October.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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