Jim Scott and I studied this 15 years ago using prices we obtained (and archived in real time) from our prime brokers and found precisely the same result - for the same reasons. One small point is that these tend to be very thinly traded stocks so illiquidity also plays a role here.
There’s a mechanism-level model that may help explain the price stickiness you’re describing.
In housing, the market clearing variable changes depending on the financing structure. When mortgages are short duration or floating-rate, price clears the market (standard asset valuation: discounted rent stream).
But once long-duration, fixed-rate, securitized mortgages dominate the system, existing owners are insulated from price changes. They will not sell into a falling price because doing so crystallizes a balance sheet loss relative to their fixed financing.
In that regime, price is no longer the clearing variable. Turnover becomes the clearing variable instead. So when rates rise, we should expect: prices to remain sticky, turnover to collapse, and the distribution of who can transact to shift toward new-build developers (who have access to fresh financing).
This fits the data from 2022 onward: mortgage rates doubled, but prices barely moved while transaction volume halved. The implication is that asset pricing in housing has two stable regimes:
- Equilibrium regime: Price anchored to rents (discounted services).
- Financialized regime: Price anchored to maximum payment capacity at prevailing mortgage terms.
The regime switch is structural, driven by the financing instrument. This might explain the empirical puzzle you’ve pointed out (stickiness without nominal rigidity) in a way consistent with standard market clearing theory, just with a different clearing variable.
Are the results of the first paper a counterbalance to the size premium?
Explain how Nancy Pelosi was able to consistently beat the Dow by a huge margin, if you can.
Jim Scott and I studied this 15 years ago using prices we obtained (and archived in real time) from our prime brokers and found precisely the same result - for the same reasons. One small point is that these tend to be very thinly traded stocks so illiquidity also plays a role here.
For hard-to-borrow stocks, I like to describe the sec lending price as more efficient than the stock's market price.
There’s a mechanism-level model that may help explain the price stickiness you’re describing.
In housing, the market clearing variable changes depending on the financing structure. When mortgages are short duration or floating-rate, price clears the market (standard asset valuation: discounted rent stream).
But once long-duration, fixed-rate, securitized mortgages dominate the system, existing owners are insulated from price changes. They will not sell into a falling price because doing so crystallizes a balance sheet loss relative to their fixed financing.
In that regime, price is no longer the clearing variable. Turnover becomes the clearing variable instead. So when rates rise, we should expect: prices to remain sticky, turnover to collapse, and the distribution of who can transact to shift toward new-build developers (who have access to fresh financing).
This fits the data from 2022 onward: mortgage rates doubled, but prices barely moved while transaction volume halved. The implication is that asset pricing in housing has two stable regimes:
- Equilibrium regime: Price anchored to rents (discounted services).
- Financialized regime: Price anchored to maximum payment capacity at prevailing mortgage terms.
The regime switch is structural, driven by the financing instrument. This might explain the empirical puzzle you’ve pointed out (stickiness without nominal rigidity) in a way consistent with standard market clearing theory, just with a different clearing variable.