Exploring sentiment-driven trading behaviour of different types of investors in the London office market

We investigates the sentiment-driven trading behaviour of the four types of investors in the London office market, i.e. UK institutional investors, UK private investors, UK listed real estate companies/Real Estate Investment Trust (REIT)s and overseas investors. In addition, we examine the relationship between investor sentiment and property performance. Related indices are calculated to examine the existence of herding behaviour of different investors. We find that UK private investors follow a contrarian strategy to UK institutional investors and listed real estate companies/REITs and enter/exit the market at different points of time. UK institutional investors tend to follow the sentiment of UK listed real estate companies/REITs and overseas investors with lags. There is no evidence that overseas investors rely upon the sentiment of UK specialised property investors in their decision-making. We find the sentiment of different investors is influenced differently by market fundamentals. Yield and rental growth rate have significant impact on trading activity of overseas investors, but not on other investors. The stock market return and securitised real estate return have significant impact on the trading activity of UK institutional investor and overseas investor, but have no significant influence on the trading behaviour of UK private investor and listed real estate company/REIT.     

Real estate sentiment as information for REIT bond pricing

For corporate bond investors, credit ratings have been found to be informationally insufficient due to their limited timeliness and accuracy. This paper investigates the information content of forward-looking commercial real estate investor sentiment for pricing decisions of US REIT bond investors. Using an unbalanced panel data-set for the post-crisis period (2010–2013) and Prais–Winsten regression correcting for contemporaneous and serial correlation, sentiment is found to have a negative effect on REIT bond yields irrespective of S&P index inclusion or credit rating. The effect of sentiment, however, is larger for REITs that are not included in S&P indices than for S&P REITs. Explanations for this finding include institutional investor and REIT characteristics.     

Firm and industry informational content from REIT FFO announcements

Conveyance of information associated with REIT FFO announcements is investigated by decomposing stock returns into three components: firm-specific, industry-level and market-wide. The relative importance of firm-specific and industry information is evaluated around and following FFO announcements. The initial market reaction to REIT FFO announcements is primarily driven by the firm-specific return component. The underreaction to firm-specific information appears in drift after the announcement, especially for negative FFO surprises. FFO surprises explain the firm-specific return component, but not the industry-level return component which further suggests that FFO announcements only convey firm-specific information.     

Capitalization of Farm Policy Benefits and the Rate of Return to Policy-Created Assets: Evidence from California Dairy Quota

The rate of return to ownership of California dairy quota is about 27% per year—well above that of typical financial assets, but in line with other measured returns to agricultural quotas. Ownership of dairy quota does not contribute positively to total variation of typical portfolios, including those of dairy farm assets, and so contributes little or no portfolio risk. A plausible alternative hypothesis for the high rate of return is that quota owners see significant risk of policy change that would reduce future quota values. That is, they face default risk in quota ownership.     

On the market risk of securitized timberlands

Over 10 million acres of timberlands in the United States have been securitized through Real Estate Investment Trusts (REITs) in recent years. Publicly traded timber REITs have better liquidity and tax efficiency than private ownership, but at the same time, they are exposed to higher market risk as public firms. In this study, copula modeling is employed to assess the joint distribution between daily returns of five timber REITs and a stock market index. Both constant and time-varying symmetrized Joe-Clayton copulas are estimated to evaluate the dependence of timber REITs on the equity market from 1994 to 2010. In most cases, there exist lower tail dependence for market stresses, upper tail dependence for market booms, and tail asymmetry between individual firms and the market. On average, the dependence measure becomes larger after a firm is converted into a REIT. Each firm has smaller volatility of tail dependence after the conversion, except for Plum Creek. These findings reveal that the REIT structure has introduced non-diversifiable market risk into its ownership, and thus the diversification benefit of publicly traded timber REITs in a portfolio may be limited.     

War Legacies,Welfare and Livelihoods in Rural Areas: The Case of Kosovo

This article examines the effects of war on livelihood choices and welfare outcomes of rural households in Kosovo using the 2000 Kosovo Living Standards Measurement Survey. We analyse the extent of the legacy of war on livelihood activities and welfare. We first identify livelihood portfolio clusters of households pursuing similar combinations of activities. These clusters are comparable to those described in more qualitative studies in the immediate post‐conflict period. We then examine the determinants of livelihood portfolio choice and the consequences of these for welfare outcomes. Our results provide evidence of a relationship between a household’s experience of war and livelihood choice. We also identify significant selection effects on welfare for three out of four livelihood clusters, highlighting the fact that selecting into a specific livelihood portfolio changes welfare relative to expected levels. Our results show that war not only affects livelihood choices but also changes the returns to these activities.     

The 4% rule: Does real estate make a difference?

This paper examines the wealth maximisation and preservation effects of including commercial real estate in retirement-phase portfolio management. Prior research addresses the role of real estate during the wealth-accumulation phase of the investor lifecycle; however, little is known about the contribution of real estate during the invest-and-spend, or decumulation, phase. To address this issue, we estimate short-fall risk based on the widely known 4% Rule. We use pricing data for multiple asset classes and simulation techniques, combined with a robust correlation structure, to examine: short-fall risk sensitivity to alternative spending rules; the impact of public vs. private real estate allocations; wealth preservation as an investment objective; and the effect of real estate on upside, or wealth maximisation, potential. We find short-fall risk in a decumulation portfolio decreases with substantial allocations to real estate. This result holds for a portfolio including either public or private real estate. Additionally, and under most conditions, the best performing decumulation-phase portfolios include a real estate allocation with both public and private real estate exposure. These results have significant implications for investors, whether they be retirees, plan administrators or endowments, as well as financial economists studying the lifecycle of investment decisions.     

Property portfolio allocation: A multi‐factor model

Summary

The objective of the paper is to describe a method of portfolio allocation currently being developed in the property sector. The model applies a multi‐index approach to portfolio decision making and enables investors to explore the effects of changing their allocational decisions. In estimating the parameters required for the model, we explain the method which can be used to adjust for smoothing effects on returns caused by the valuation process. Although the model is still at the development stage, the approach is general and can be applied both to allocating funds within a mixed‐asset portfolio or between different types of property within a wholly property‐orientated portfolio.     

The restructuring of the institutional real estate portfolio in the UK

Real estate investment portfolios of financial institutions have seen dramatic changes over the last three decades or more. Historically such property investment decisions have been seen within a portfolio diversification paradigm that has sought to balance risk and return. This paper considers the role of the supply of assets in the determining and constraining the UK institutional portfolio. The supply of real estate assets not only expands during property booms but has also been transformed by a long term urban development cycle as cities adapt to cars and the ICT revolution that has brought new property forms. The research examines long term trends in investment change by disaggregating into ten property forms rather than the usual three land use sectors. It then assesses to what extent investment patterns can be explained in terms of portfolio theory, short term net returns of individual sectors or driven by the supply of real estate assets. It concludes that the supply of real assets is an overlooked explanation.     

Predicting uncertainty: the impact of risk measurement on value of real estate portfolios

This paper presents a theoretical framework for an assessment and valuation of real estate assets and funds, based on modern stochastic discounted cash flow (DCF) models, which accurately captures the nature of related risks. We show that an accurate risk-adjusted valuation is particularly difficult for real estate investments, due to practical limits to diversification and difficulties in approximating total risk with systematic risk. We develop a risk assessment framework that includes idiosyncratic risk but focuses on insolvency risk related to a specific cash flow profile. We also present a methodology of rating this risk, using forecasts and simulations. We conclude that simulation techniques are a valuable tool in property risk assessment. Further, we show that cost of capital and value of assets depend on diversification of specific risks, investors can achieve in their portfolios.     

Heterogeneity in the Cost Structure of Water and Sanitation Services: A Cross-country Comparison of Conditions for Scale Economies

The main purpose of this article is to compare the cost structure of water utilities across a set of 14 countries with different levels of economic development. As far as is known, the cross-country perspective is novel in this literature. This article first provides new measures of returns to scale in the water and sanitation sector for a set of countries, most of them from the developing world. It is then shown that the probability of a utility operating under decreasing, constant, or increasing returns to scale depends not only on its characteristics (the volume of water produced in particular), but also on the country's level of economic development (gross national income) and business environment as measured by investor protection, the cost of enforcing contracts and perceptions of corruption.     

Futures markets and real estate public equity: Connectivity of lumber futures and Timber REITs

This paper investigates connectivity between lumber futures contracts, Timberland REITs, the FTSE NAREIT U.S. REIT index, spot prices, and timberland capitalization rates, and contributes to this tranche of research by empirically linking the price discovery process of Timberland Real Estate Investment Trusts to lumber futures. We employ VEC and GARCH models, providing evidence that lumber futures have a positive significant long- and short-run equilibrium relationship with publicly traded Timber REIT prices, connecting a specific futures commodity with its theoretically entwined real estate equity index. As such, exogenous factors that influence Timber REIT prices are documented leading to possible diversification/risk reduction strategies.     

水环境治理PPP项目合同柔性对项目融资风险的影响

为降低水环境治理PPP项目融资风险,结合合同柔性、PPP项目预期收益、信任与融资风险构建理论模型,探究合同柔性对项目融资风险的影响机理。研究结果表明:合同价格柔性、再谈判柔性、激励柔性均显著负向影响融资风险;PPP项目预期收益在价格柔性与融资风险关系中起完全中介作用,在再谈判柔性、激励柔性对融资风险影响中起部分中介作用;善意信任能增强价格柔性与激励柔性对融资风险的负向影响,但会减弱再谈判柔性的负向影响;能力信任在价格柔性与再谈判柔性对融资风险关系中起负向调节作用。研究从优化合同条款、创新回报机制、评估信任水平等方面为降低项目融资风险提供可行性建议。     

Livelihood diversification strategies in the Himalayas*

This article examines livelihood diversification strategies of rural households using survey data from the Himalayas. We present and explore an analytical framework that yields different activity choices as optimal solutions to a simple utility maximization problem. By classifying the range of activities of rural households into a few distinct categories based on their profitability and by considering portfolios of farm and non‐farm activities, we provide novel insights into diversification behaviour of rural households. The evidence shows that while the poor are mainly agricultural labourers and work in the low‐return non‐farm sector, the better‐off diversify in high‐return non‐farm activities. As expected, we find strong evidence that education plays a major role in accessing more remunerative non‐farm employment. A somewhat less intuitive finding is that larger household size is associated with higher probability of diversification into the high‐return non‐farm sector. The finding that the farm size is not a constraint to diversification in lucrative non‐farm employment is also surprising. Geographical location plays a role in diversification behaviour of rural households indicating the importance of local context.     

A portfolio analysis of incentive programmes for conservation,restoration and timber plantations in Southern Ecuador

This paper uses portfolio analysis to study how the Ecuadorian incentive programme for forest conservation and restoration (Socio Bosque), and an incentive programme for timber plantations, may reduce income risk and/or maximise returns for a given level of risk for farmers in the municipality of Loja. The main existing land use in the research area is milk production on pasture, with some farmers having forest land. Our results suggest that most farmers would significantly increase the area under conservation and/or restoration as part of their risk reduction strategies, compared to a decision based solely on expected returns. However, in land use allocations that maximise the return per unit of risk, a small group of milk producers without forest would continue milk production on most of their land. In addition, milk producers with forest would significantly decrease deforestation under the land use allocations made when conservation incentives are available. Against this we also identify a likely shift of milk production from existing pasture to new pasture established on deforested land, which provides evidence of a potential ‘leakage effect’. In addition, the incentive programmes would only lead to small areas of tree plantations being established. None of the land use combinations (portfolios) analysed would increase the income of all households to above the poverty line, as the monetary incentives are too low and many farms are too small. For forest holders all the land use combinations we studied would have a positive impact on income, but we observed a negative impact on household income for milk producers without forest. For producers without any forest, there seems to be a trade-off between maximising household income and risk reduction through combining incentives for restoration and tree plantations.     

Harmonization of food trade standards and regulations in ASEAN: the case of Malaysia's food imports

Regulatory heterogeneity continues to be identified as a challenge for food trade in the Association of Southeast Asian Nations (ASEAN) as the progress of harmonization of food standards among member states remains slow. Using a new and comprehensive database on nontariff measures (NTMs), this article examines the coverage, frequency, and diversity of NTMs for the food sector in Malaysia, and then estimates their impact on food imports from ASEAN. The food sector in Malaysia is found to be highly regulated, dominated by technical measures, namely, labeling for sanitary and phytosanitary and technical barriers to trade reasons, product quality, and restricted substances. The empirical results subsequently verify that, overall, technical measures are import restrictive. This article therefore contends that harmonization of food standards and regulations at the regional level is important for enhancing trade. However, building common ground for food safety regulations should be NTM‐ and sector‐specific, to realize progress in terms of regulatory convergence. This is particularly true for the food sector, since complete harmonization is not practical and not politically feasible.     

Frontiers of commercial real estate portfolio performance: Are sector-region-efficient diversification strategies a myth or reality?

This paper departs from the traditional optimisation methods used to evaluate portfolio performance. Rather, the Stochastic Frontier Analysis approach is used to econometrically determine the benchmark real estate portfolio frontier and subsequently assess the gains from diversifying real estate portfolios along regional and sectoral dimensions in the UK. Portfolio specific inefficiency measures are obtained which indicate whether a portfolio is efficiently diversified and therefore places on the benchmark frontier and if not, the degree to which performance can be improved is quantified. Portfolio-specific efficiencies average at 85–91%, indicating scope to further improve performance. Further, diversification be it on a sectoral or regional dimension, contributes to significantly lower variability in portfolio efficiencies.     

Was It Something I Ate? Implementation of the FDA Seafood HACCP Program

We develop a theoretical model of enforcement and compliance under HACCP regulation and use the FDA's seafood inspection records to examine: (1) if the FDA has targeted its inspections under HACCP regulation; (2) the effects of inspections on compliance with HACCP and plant sanitation standards; and (3) the relationship between compliance with HACCP and preexisting sanitation standards. There is some evidence of targeting based on product risk, but not on past compliance performance. The threat of an inspection increases the likelihood of compliance, but only for sanitation inspections, not for HACCP. HACCP compliance does not improve compliance with sanitation standards.     

Modeling differentiated quality standards in the agri-food sector: the case of meat trade in the enlarged EU

Quality standards play an increasingly important role in international agri-food trade, and their functioning as nontariff barriers to trade is widely discussed. We argue that food quality standards imposed by importing countries are more than just border measures and can have profound effects on the market structure of the exporting industry, thereby significantly influencing the supply response. We develop a stylized oligopoly model that accounts for compliance costs (fixed and variable) and investigate alternative policy options to explore different mechanisms an importing county may use to enhance the quality of its imports. The model explicitly recognizes the coexistence of complying and noncomplying firms, which is a situation often found in low-income countries where a small modern export-oriented segment invests in meeting foreign quality standards. We use the adjustment of the Polish meat sector to the tight EU food quality standards as an empirical example. The simulations show that a subsidy scheme can promote compliance with standards and can contribute to an upgrade of the industry in the exporting country, but its marginal effectiveness is diminishing.     

Heterogeneity of commercialization gains in the rural economy

Farmers in low‐income rural economies often fail to switch to cash crops from staple production despite the positive income effects of commercialization expected by policy makers. The literature suggests that market failures prevent households from cash crop adoption but remains inconclusive regarding farmers' motives and the effects of commercialization. This article contributes to the debate by offering an original approach to the analysis of commercialization outcomes and farmers' decisions. It consists of applying a model with essential heterogeneity and a semiparametric estimation technique to analyzing harvest value returns to cash cropping. Using Malawian data, we show considerable heterogeneity in harvest value returns to cash cropping both within and between groups of farmers choosing different crop portfolios. Importantly, the results imply rational choices based on comparative advantage considerations of farming households: farmers self‐select into the activity where they expect higher gains and adopt cash crops when facing weaker market barriers.