Pricing of commercial real estate securities during the 2007-2009 financial crisis

J.J.A.G. Driessen; O. van Hemert

doi:10.1016/j.jfineco.2012.02.006

Pricing of commercial real estate securities during the 2007-2009 financial crisis

J.J.A.G. Driessen, O. van Hemert

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16 Citations (Scopus)

Abstract

We study the relative and absolute pricing of CMBX contracts (commercial real estate derivatives) during the recent financial crisis. Using a structural CMBX pricing model, we find little systematic mispricing relative to REIT equity and options. We do find short-term deviations from this relative pricing relationship that are statistically and economically significant. In particular, the CMBX market temporarily overreacts to news announcements. We provide evidence that this temporary mispricing is caused by price pressure due to hedging activities. Finally, an absolute pricing analysis provides no substantial evidence that CMBX contracts traded at fire sale levels during the crisis.

Original language	English
Pages (from-to)	37-61
Journal	Journal of Financial Economics
Volume	105
Issue number	1
DOIs	https://doi.org/10.1016/j.jfineco.2012.02.006
Publication status	Published - 2012

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10.1016/j.jfineco.2012.02.006

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title = "Pricing of commercial real estate securities during the 2007-2009 financial crisis",

abstract = "We study the relative and absolute pricing of CMBX contracts (commercial real estate derivatives) during the recent financial crisis. Using a structural CMBX pricing model, we find little systematic mispricing relative to REIT equity and options. We do find short-term deviations from this relative pricing relationship that are statistically and economically significant. In particular, the CMBX market temporarily overreacts to news announcements. We provide evidence that this temporary mispricing is caused by price pressure due to hedging activities. Finally, an absolute pricing analysis provides no substantial evidence that CMBX contracts traded at fire sale levels during the crisis.",

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AB - We study the relative and absolute pricing of CMBX contracts (commercial real estate derivatives) during the recent financial crisis. Using a structural CMBX pricing model, we find little systematic mispricing relative to REIT equity and options. We do find short-term deviations from this relative pricing relationship that are statistically and economically significant. In particular, the CMBX market temporarily overreacts to news announcements. We provide evidence that this temporary mispricing is caused by price pressure due to hedging activities. Finally, an absolute pricing analysis provides no substantial evidence that CMBX contracts traded at fire sale levels during the crisis.

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DO - 10.1016/j.jfineco.2012.02.006

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SP - 37

EP - 61

JO - Journal of Financial Economics

JF - Journal of Financial Economics

SN - 0304-405X

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Pricing of commercial real estate securities during the 2007-2009 financial crisis

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