Discussion Paper Details

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Title: Spatial Asset Pricing: A First Step

Author(s): François Ortalo-Magné and Andrea Prat

Publication Date: May 2010

Keyword(s): asset pricing, real estate and urban economics

Programme Area(s): Financial Economics

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 Reference

Ortalo-Magné, F and Prat, A. 2010. 'Spatial Asset Pricing: A First Step'. London, Centre for Economic Policy Research.