Show simple item record

dc.contributor.authorBoudry, Walter I.
dc.contributor.authorLiu, Crocker H.
dc.contributor.authorMühlhofer, Tobias
dc.contributor.authorTorous, Walter N.
dc.description.abstractAre cash flows informative and predictive in valuing thinly traded assets? We investigate the extent to which cash-flow and discount-factor information plays a role in pricing thinly traded assets. We focus on pricing the various traded tranches in commercial mortgage-backed securities (CMBS) by developing an adaptation of the Campbell-Shiller dynamic Gordon growth model, which we term a Self-Propagating Rolling-Window VAR. We apply this to cash flows and actual bond prices. In contrast to stocks, we find that cash flows are informative in valuing thinly traded assets. Our predicted cash flow yields closely resemble ex-post realized transaction yields, and these predicted yields even outperform yields based on matrix prices especially for subordinated tranches. We also find that discount-factor information, while important is not as informative as cash flows in this setting, except after the financial crisis where the impact of discount-factor information increases somewhat. Our results provide a good representation of CMBS yields; investors can readily apply this algorithm to infer values of other types of thinly traded assets where cash flows are observable.
dc.rightsRequired Publisher Statement: Copyright held by the authors.
dc.subjectthinly traded assets
dc.subjectasset pricing
dc.subjectpanel vector autoregression
dc.subjectCommercial Mortgage-Backed Securities
dc.subjectJEL G12
dc.subjectJEL R33
dc.titleUsing Cash Flow Dynamics to Price Thinly Traded Assets
dc.description.legacydownloadsBoudry15_Using_Cash_Flow.pdf: 90 downloads, before Aug. 1, 2020.
local.authorAffiliationBoudry, Walter I.: Cornell University School of Hotel Administration
local.authorAffiliationLiu, Crocker H.: Cornell University School of Hotel Administration
local.authorAffiliationMühlhofer, Tobias: University of Miami
local.authorAffiliationTorous, Walter N.: Massachusetts Institute of Technology

Files in this item


This item appears in the following Collection(s)

Show simple item record