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Asset Pricing with Spatial Interaction

Author

Listed:
  • Steven Kou

    (Risk Management Institute and Department of Mathematics, National University of Singapore, Singapore 119613)

  • Xianhua Peng

    (Department of Mathematics, Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong)

  • Haowen Zhong

    (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.

Suggested Citation

  • Steven Kou & Xianhua Peng & Haowen Zhong, 2018. "Asset Pricing with Spatial Interaction," Management Science, INFORMS, vol. 64(5), pages 2083-2101, May.
    • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:5:p:2083-2101
    DOI: mnsc.2016.2627
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    References listed on IDEAS

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    Cited by:

    1. Ge, S., 2020. "Text-Based Linkages and Local Risk Spillovers in the Equity Market," Cambridge Working Papers in Economics 20115, Faculty of Economics, University of Cambridge.
    2. Chen, Na & Jin, Xiu, 2023. "Cross-industry asset allocation with the spatial interaction on multiple risk transmission channels," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
    3. Chen, Na & Jin, Xiu & Zhuang, Xintian & Yuan, Ying, 2020. "Spatial pricing with multiple risk transmission channels and specific factors," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 549(C).
    4. Qin, Chang-Xiong & Liu, Zhao, 2022. "Reference price effect of partially similar online products in the consideration stage," Journal of Business Research, Elsevier, vol. 152(C), pages 70-81.
    5. Greppmair, Stefan & Jank, Stephan & Smajlbegovic, Esad, 2023. "On the importance of fiscal space: Evidence from short sellers during the COVID-19 pandemic," Journal of Banking & Finance, Elsevier, vol. 147(C).
    6. Enzo D'Innocenzo & André Lucas & Anne Opschoor & Xingmin Zhang, 2024. "Heterogeneity and dynamics in network models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(1), pages 150-173, January.
    7. Lu, Yunzhi & Li, Jie & Yang, Haisheng, 2021. "Time-varying inter-urban housing price spillovers in China: Causes and consequences," Journal of Asian Economics, Elsevier, vol. 77(C).
    8. Chongyu Wang & Jeffrey P. Cohen & John L. Glascock, 2019. "Geographic Proximity and Competition for Scarce Capital: Evidence from U.S. REITs," International Real Estate Review, Global Social Science Institute, vol. 22(4), pages 535-570.
    9. Chengxue Yao & Fan Jiang & Liang Guo, 2023. "Fixed investment or financial assets investment: Evidence from political uncertainty in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 427-450, March.
    10. Huang, Jionghao & Li, Ziruo & Xia, Xiaohua, 2021. "Network diffusion of international oil volatility risk in China's stock market: Quantile interconnectedness modelling and shock decomposition analysis," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1-39.
    11. Ge, Shuyi & Li, Shaoran & Linton, Oliver, 2023. "News-implied linkages and local dependency in the equity market," Journal of Econometrics, Elsevier, vol. 235(2), pages 779-815.
    12. Zhipu Zhou & Alexander Shkolnik & Sang-Yun Oh, 2020. "Endogenous Representation of Asset Returns," Papers 2010.13245, arXiv.org, revised Nov 2020.

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