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Commercial Mortgage‐Backed Securities (CMBS) and Market Efficiency with Respect to Costly Information
Author(s) -
Christopoulos Andreas D.,
Jarrow Robert A.,
Yildirim Yildiray
Publication year - 2008
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/j.1540-6229.2008.00219.x
Subject(s) - market efficiency , asset (computer security) , business , capital asset pricing model , financial economics , economics , security market , finance , computer science , computer security
Commercial mortgage‐backed securities (CMBS) are complex asset‐backed securities trading in markets that do not currently use derivatives pricing technology. This lack of usage is due to the complexity of the modeling exercise, and only the recent and costly availability of historical data. As such, CMBS markets provide a natural environment for the testing of market efficiency with respect to this costly information. Using this information, this article develops a CMBS pricing model to provide a joint test of the model and market efficiency. Backtesting our pricing model for 4 years, although there is some evidence of abnormal trading profits, we cannot reject the efficiency of the CMBS markets.