IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/7842.html
   My bibliography  Save this paper

Spatial Asset Pricing: A First Step

Author

Listed:
  • 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).

Suggested Citation

  • Ortalo-Magné, François & Prat, Andrea, 2010. "Spatial Asset Pricing: A First Step," CEPR Discussion Papers 7842, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7842
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7842
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Iacoviello, Matteo & Ortalo-Magne, Francois, 2003. "Hedging Housing Risk in London," The Journal of Real Estate Finance and Economics, Springer, vol. 27(2), pages 191-209, September.
    2. Gyourko, Joseph & Tracy, Joseph, 1991. "The Structure of Local Public Finance and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 774-806, August.
    3. Morris A. Davis, 2010. "housing and the business cycle," The New Palgrave Dictionary of Economics, Palgrave Macmillan.
    4. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-1278, December.
    5. Todd Sinai & Nicholas S. Souleles, 2005. "Owner-Occupied Housing as a Hedge Against Rent Risk," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 763-789.
    6. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 255-296, March.
    7. Hanno N. Lustig & Stijn G. Van Nieuwerburgh, 2005. "Housing Collateral, Consumption Insurance, and Risk Premia: An Empirical Perspective," Journal of Finance, American Finance Association, vol. 60(3), pages 1167-1219, June.
    8. 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.
    9. Edward L. Glaeser & Joseph Gyourko, 2005. "Urban Decline and Durable Housing," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 345-375, April.
    10. Englund, Peter & Hwang, Min & Quigley, John M, 2002. "Hedging Housing Risk," The Journal of Real Estate Finance and Economics, Springer, vol. 24(1-2), pages 167-200, Jan.-Marc.
    11. François Ortalo-Magné & Andrea Prat, 2005. "The Political Economy of Housing Supply," Levine's Bibliography 122247000000000954, UCLA Department of Economics.
    12. Marjorie Flavin & Shinobu Nakagawa, 2008. "A Model of Housing in the Presence of Adjustment Costs: A Structural Interpretation of Habit Persistence," American Economic Review, American Economic Association, vol. 98(1), pages 474-495, March.
    13. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2010. "Winners and Losers in House Markets," Working Papers 2010-5, Central Bank of Cyprus.
    14. Goetzmann, William Nelson, 1993. "The Single Family Home in the Investment Portfolio," The Journal of Real Estate Finance and Economics, Springer, vol. 6(3), pages 201-222, May.
    15. Todd Sinai & Nicholas Souleles, 2013. "Can Owning a Home Hedge the Risk of Moving?," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 282-312, May.
    16. 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.
    17. David le Blanc & Christine Lagarenne, 2004. "Owner-Occupied Housing and the Composition of the Household Portfolio: The Case of France," The Journal of Real Estate Finance and Economics, Springer, vol. 29(3), pages 259-275, November.
    18. Hanno Lustig & Stijn Van Nieuwerburgh, 2010. "How Much Does Household Collateral Constrain Regional Risk Sharing?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 265-294, April.
    19. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2010. "Why Has House Price Dispersion Gone Up?," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1567-1606.
    20. 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.
    21. Rui Yao, 2005. "Optimal Consumption and Portfolio Choices with Risky Housing and Borrowing Constraints," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 197-239.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Frame, David, 2013. "Saving and consumption in cities," Journal of Urban Economics, Elsevier, vol. 73(1), pages 111-124.
    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. Määttänen, Niku & Terviö, Marko, 2014. "Income distribution and housing prices: An assignment model approach," Journal of Economic Theory, Elsevier, vol. 151(C), pages 381-410.
    5. 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.
    6. de Bandt, O. & Barhoumi, K. & Bruneau, C., 2010. "The international transmission of house price shocks," Working papers 274, Banque de France.
    7. Davis, Morris A. & Van Nieuwerburgh, Stijn, 2015. "Housing, Finance, and the Macroeconomy," Handbook of Regional and Urban Economics, Elsevier.
    8. Tuijp, Patrick, 2016. "The pricing of illiquidity and illiquid assets : Essays on empirical asset pricing," Other publications TiSEM cc548ebe-e34d-44c7-ac7c-a, Tilburg University, School of Economics and Management.
    9. Sigrid Röhrs & David Stadelmann, 2014. "Homeownership, Mobility, And Local Income Redistribution," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(4), pages 569-605, August.

    More about this item

    Keywords

    asset pricing; real estate; urban economics;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:7842. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.