SPATIAL BARRIERS AND INFORMATION PROCESSING IN HOUSING MARKETS: AN EMPIRICAL INVESTIGATION OF THE EFFECTS OF THE CONNECTICUT RIVER ON HOUSING RETURNS

ABSTRACT. Relative to financial securities markets, information is a scarce commodity in real estate markets. If information diffuses quickly in real estate markets, then we can infer that telecommunications play an important role. On the other hand, spatial barriers such as rivers can slow down the assimilation of relevant information if face-to-face contacts are an important source of information. We examine whether and how the Connecticut River (along with bridges) alters the nature and strength of spatial diffusion of information on housing returns. We report strong evidence that the Connecticut River slows down the spatial diffusion of information and that its effects are consistent with face-to-face contact, as opposed to telecommunications.