Optimal Time to Sell in Real Estate Portfolio Management

This paper examines the properties of optimal times to sell a diversified real estate portfolio. The portfolio value is supposed to be the sum of the discounted free cash flows and the discounted terminal value (the discounted selling price). According to Baroni et al. (Journal of Property Investment and Finance 25(6):603–625, 2007b), we assume that the terminal value corresponds to the real estate index. The optimization problem corresponds to the maximization of a quasi-linear utility function. We consider three cases. The first one assumes that the investor knows the probability distribution of the real estate index. However, at the initial time, he has to choose one deterministic optimal time to sell. The second one considers an investor who is perfectly informed about the market dynamics. Whatever the random event that generates the path, he knows the entire path from the beginning. Then, given the realization of the random variable, the path is deterministic for this investor. Therefore, at the initial time, he can determine the optimal time to sell for each path of the index. Finally, the last case is devoted to the analysis of the intertemporal optimization, based on the American option approach. We compute the optimal solution for each of these three cases and compare their properties. The comparison is also made with the buy-and-hold strategy.

The democratic transition

Over the last two centuries, many countries experienced regime transitions toward democracy. We document this democratic transition over a long time horizon. We use historical time series of income, education and democracy levels from 1870 to 2000 to explore the economic factors associated with rising levels of democracy. We find that primary schooling, and to a weaker extent per capita income levels, are strong determinants of the quality of political institutions. We find little evidence of causality running the other way, from democracy to income or education.     

Global Issues in Selecting Athlete Endorsers for National Markets: A Macroinvestigation

ABSTRACT

Little advertising research explores the role of culture in selecting celebrity endorsers. The purpose of this study is to explore how the selection process of athlete endorsers is shaped by national contexts. Based on interviews with advertising practitioners in 10 countries, the study reveals similarities in practitioners’ thinking across countries on a variety of matters related to athlete endorsement. It reveals the importance given by practitioners to the “cultural attractiveness” of national athlete endorsers when using them to connect with their national audience and shows that the selection process depends greatly on various cultural pressures linked to sporting traditions of each country. The study also shows how practitioners believe that athlete endorsers should be used mainly to generate brand and advertising awareness principally under pressure from clients’ emotional input.     

Third Parties and Contract Design: The Case of Contracts for Technology Transfer

Given the challenges associated with drafting technology‐transfer contracts, we examine decisions to involve third parties offering technical or legal support in the contract‐drafting process. We first argue that the attributes of the transaction are key drivers of third‐party involvement. We then draw on the behavioral theory of the firm to develop arguments regarding the influence of third parties on contract complexity. Our results reveal that the involvement of legal third parties tends to magnify the contract's overall complexity. In contrast, the involvement of technical third parties reduces the inclusion of monitoring provisions and increases the inclusion of coordination provisions. Copyright © 2015 John Wiley & Sons, Ltd.     

Demographics and recent productivity performance: insights from cross‐country comparisons

Abstract.  Over the last few decades, countries have experienced quite different patterns of productivity growth. In this paper, we emphasize the role of country level demographics in explaining these differences. In particular, looking over the period 1960–2002, we show that cross‐country data support the notion that, starting in the late 1970s, countries went through a period of technological transition that lasted at least until the mid‐1990s for the fastest adjusting countries and is still proceeding for the slower adjusting countries. The main claim of the paper is that the country‐level rate of labour growth was a key factor driving the speed of adjustment to the new technological paradigm, implying that much of the cross‐country difference in economic performance over recent decades can be explained by demographic differences across countries as opposed to the many other factors emphasized in the literature. JEL classification: O33, O41     

Poole in the New Keynesian model

We study the properties of alternative central bank targeting procedures within the standard New Keynesian model. We find that Poole's famous insights concerning the output stabilization properties of money and interest rate targeting obtain when intertemporal substitution is low. And that output volatility rankings do not induce similar welfare rankings. Unlike the popular presumption, money targeting always fares better for money demand shocks. For fiscal shocks, money targeting does better for low and worse for high degree of intertemporal substitution. The opposite pattern obtains for supply shocks.     

Is It Possible to Construct Derivatives for the Paris Residential Market?

Index-based derivatives markets are fast developing in Europe, the US and Asia. Both valuation based and transactions based indices are used as bases for these derivatives contracts. This paper addresses the issue of revision effects on key index parameters, and their implications for derivatives pricing and questions whether these indices may be suitable for derivatives. More specifically, we address the issue of the robustness of the price level, mean, and volatility estimates for two repeat sales real estate price indices: the classical Weighted Repeat Sales (WRS) method and a Principal Component Analysis (PCA) factorial method, as elaborated in Baroni et al. (J Real Estate Res, 29(2):137–158, 2007). Our work is an extension of Clapham et al. (Real Estate Econ, 34(2):275–302, 2006), with the aim of helping judge the efficiency of such indices in designing real estate derivatives. We use an extensive repeat sales database for the Paris (France) residential market. We describe the dataset used and compute the parameters (index price level, trend and volatility) of the indices produced over the period 1982–2005. We then test the sensitivity of these two indices to revisions due to additional repeat-sales transactions information. Our analysis is conducted on the overall Paris market as well as on sub-markets. Our main conclusion is that even if the revision problem may cause substantial concern for the stability of key parameters that are used as inputs in the pricing of derivatives contracts, the order of magnitude of revision on derivatives pricing is not sufficient to deter market participants when it comes to products such a swap contract or insurance contracts against severe losses. We also show that WRS and PCA react differently to revision. The impact of index revision is non negligible in estimating the index price level for both indices. This result is consistent with existing literature for the US and Swedish markets. Price level revision causes moderate concern when trading products such as index futures or price insurance contracts, but could deter option like products. We show that managing this price level revision risk is similar to delta hedging in standard option pricing theory. We also find that although revision impact on index trend can be important, the WRS method seems more robust than PCA. However, the trend revision impact order of magnitude for contracts such as total return swaps is low. Finally, revision influence on volatility estimates seems to have a modest impact on derivatives, and according to the robustness of the volatility estimate, the PCA factorial index seems to fare relatively better than the WRS index. Hence, our findings show that the factorial index could better sustain volatility based derivatives. We also show that whatever the index, managing this volatility revision risk is similar to vega hedging in option pricing theory.

An exploratory inquiry into destination risk perceptions and risk reduction strategies of first time vs. repeat visitors to a highly volatile destination

The paper examines the relationships between first-time vs. repeat visitors to a highly volatile destination in terms of destination risk perceptions, risk reduction strategies and motivation for the visit. The exploratory research question centers on possible differences in tourist behavioral profiles associated with their decision to visit a foreign destination again. Set in Israel, a highly volatile tourist destination, researchers interviewed 760 international tourists using a questionnaire classifying them as either first-time or repeat visitors. Discriminant analysis revealed that first-time visitors were characterized by human-induced risk, socio-psychological risk, food safety and weather risk. In contrast, repeat visitors were associated with the destination risk factors of financial risk, service quality risk, natural disasters and car accidents. First-time vs. repeat visitors were also compared and contrasted in terms of risk reduction strategies such as consulting with people who had previously visited specific destinations and gathering information from travel agents. Differences between first-time and repeat visitors were also found regarding motivations for the visit. Similar analyses were conducted on the three sub-groups of repeat visitors, classified in terms of number of visits.     

MARKET PRICE MECHANISMS AND STACKELBERG GENERAL EQUILIBRIA: AN EXAMPLE

This paper considers Stackelberg competition in a general equilibrium framework with a productive sector. The working of market power and the configurations of strategic interactions are complexified by the presence of a leader. Two market price mechanisms are studied: one is associated with the Stackelberg–Walras equilibrium and the other is linked to the Stackelberg–Cournot equilibrium. Throughout the example of a two commodity economy, several results are obtained about equilibria mergings and about welfare comparisons.