Abstract
We investigate the importance of cash flows as opposed to discount rates to the pricing of assets that, unlike common stock, are thinly traded but have reliable cash flow information. We rely on the dynamic Gordon model, which we adapt to deal with the thin trading environment, by developing a self-propagating rolling VAR. Using data from the CMBS market, we find that cash flows are informative in valuing these thinly traded assets. Predicted yields resemble transaction yields and outperform yields based on matrix prices, especially when cash flows are more volatile, and therefore more informative.
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