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Does the Asset Pricing Premium Reflect Asymmetric or Incomplete Information?

Author

Listed:
  • Crocker H. Liu

    (Cornell University)

  • Adam Nowak

    (West Virginia University)

  • Patrick S. Smith

    (San Diego State University)

Abstract

We develop a framework for using text as data in asset pricing models. We use the framework to test whether real estate agents exploit their informational advantage to sell properties they own for a premium. Consistent with the previous literature, baseline estimates that exclude textual information indicate agents sell their own house at a 3 to 4 percent premium in both Phoenix, AZ and Atlanta, GA. However, this premium dissipates when textual information is included. The results suggest that the baseline estimates suffer from an omitted variable bias, which previous studies incorrectly ascribe to market distortions associated with asymmetric information.

Suggested Citation

  • Crocker H. Liu & Adam Nowak & Patrick S. Smith, 2018. "Does the Asset Pricing Premium Reflect Asymmetric or Incomplete Information?," Working Papers 18-06, Department of Economics, West Virginia University.
    • Handle: RePEc:wvu:wpaper:18-06
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    File URL: https://researchrepository.wvu.edu/cgi/viewcontent.cgi?article=1004&context=econ_working-papers
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    References listed on IDEAS

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    More about this item

    Keywords

    Asset pricing; Asymmetric Information; Omitted variable bias; Textual analysis;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General

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