With this study we seek to understand the relationship between the sale and one-year lease prices in the U.S. water rights market. Given that the majority of current water rights markets in the U.S. are informal, high in transaction costs, and heterogeneous within and across states, we do not expect for the asset pricing theory to completely explain high variation in prices. Our goal is to understand which part of the pricing can be explained by the arbitrage theory and which part should be attributed to the expectations about the future conditions. Using a unique water rights trading dataset, which consists of water rights sales and one-year leases in six U.S. western states between 1994 and 2007, we follow the Newell et al. (2007) approach applied to New Zealand fisheries, and econometrically analyze the applicability of a present-value asset pricing model to the water rights markets. Our preliminary results show that the asset pricing theory holds in water rights markets, and support our hypothesis that the U.S. water rights market is less efficient than the fishing quota market in New Zealand. We further analyze what policies lead to different water rights pricing mechanisms across and within the studied states.