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Management Science Vol. 64 No. 5 2018

Asset Pricing with Spatial Interaction

Steven Kou1; Xianhua Peng2; Haowen Zhong3

1 Risk Management Institute and Department of Mathematics, National University of Singapore, Singapore 119613 · 2 Department of Mathematics, Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong · 3 Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027;

Abstract

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. The e-companion is available at https://doi.org/10.1287/mnsc.2016.2627 .

DOI
10.1287/mnsc.2016.2627
Volume
64
Issue
5
Pages
2083-2101
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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