Constrained Asset Prices
نویسندگان
چکیده
We develop a model of asset pricing in which buyers are either unable or unwilling to buy an asset at a price substantially above its price in recent transactions. This constraint could result from legal restrictions on appraisals, behavioral preferences, or agency problems. The model features price-predictability, differential pricing for identical assets, “buyer’s” and “seller’s” markets, and associations between price appreciation, volume, and liquidity. We apply the model to the market for residential real estate, in which a bank’s willingness to lend for a home purchase is limited by the appraisal, which is, in turn, generated by recent transaction prices of similar properties. We provide stylized facts consistent with all seven predictions of the model. We also provide evidence of price-predictability in several other settings in which the model is likely to apply – the markets for taxi medallions, airplanes, and commercial and industrial real estate.
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