Asset Pricing with Spatial Interaction
Management Science, 64(5), pp 2083-2101, 2018-5
We propose a spatial capital asset pricing model and a spatial arbitrage pricing theory (S-APT) that extend the classical asset pricing models by incorporating spatial interaction. We then apply the S- APT to study the comovements of eurozone stock indices (by extending the Fama-French factor model to regional stock indices) and the futures contracts on S&P/Case-Shiller Home Price Indices; in both cases, spatial interaction is significant and plays an important role in explaining cross-sectional correlation.
capital asset pricing model; arbitrage pricing theory; spatial interaction; real estate; factor model; property derivatives; futures