The market distortion effects of mortgage tightening and transaction taxes: Evidence from Hong Kong residential resale market

By using transaction-level data, we study if two popular policies intended to cool an overheated housing market would serve their intended purposes. We found both mortgage tightening and Special Stamp Duties (SSD) actually led to higher starter home prices in Hong Kong. Mortgage tightening shifted the demand for bigger homes to that for smaller ones. The SSD that applies to resales within a specified period of the original purchase lowered turnover across the housing market. The decline in turnover is, as expected, sharpest for small flats, implying a dramatic shrinkage in second-hand supply of such homes, driving their prices up. We also found transactions bunching as many homes are held till the SSD is no longer applicable, indicating lock-in effects. Relative to those that are not subject to the SSD, the prices of properties subject to the levy are found to be lower by 6.8%.     

It's ok to think in a bad way: How state optimism and pessimism influence risk-taking

Government and public policy makers are facing an important issue on how to balance between economics and consumers' well-being. Thus, the current research proposes an important factor to help understand more on consumers risk-taking in investment. Trait optimists typically expect bright outcomes, whereas trait pessimists usually expect gloomy ones. However, the present research qualifies these generalizations. This current research proposes that optimism and pessimism can also be temporarily changed and cause different impact comparing to trait optimism and pessimism. Four studies showed that state optimists and pessimists differ in their expectations of success in a situation in which outcomes are purely a matter of chance or skills. Specifically, state optimists invest more in risky options when they believe that the investments are chance-based, whereas state pessimists invest more when they believe the investments are skill-based. These effects were due to their beliefs that the outcome is due to chance or skills. Additionally, we found that the effect will be moderated by individuals' locus of control.     

The dynamics of the house price-to-income ratio: Theory and evidence

The house price-to-income ratio (PIR) is widely used as an affordability indicator. This paper complements the cross-sectionally focused literature by proposing a tractable model for the PIR dynamics. Our model predicts that the PIR is very persistent and is correlated to the lagged aggregate output. Cross-country analysis confirms this prediction and provides evidence for a long-term, positive, and significant relationship between PIR and aggregate production. Our results hint at the construction of an early warning system for housing market mispricing. Our tractable formulation of a stochastic money growth rule may carry independent research interest.     

Risk preference interactions between individual farmers and small farmer groups: Experimental evidence from rural Ethiopia

The understanding of risk preference interactions among poor farmers in developing countries has important policy implications, as many programs that aim to alleviate poverty and address risk constraints are provided on a collective basis. We conduct a randomized field experiment in the drought-prone parts of Northern Ethiopia and elicit from poor, vulnerable farmers their hypothetical willingness to pay using individual and group lottery games. Analyzing the certainty equivalent ratios (CERs), we find that farmer groups are more risk averse than individual farmers. When the risk of the lottery is high, the group CER is primarily determined by the most-risk-averse farmer of the group, and to a lesser extent, by the least. The median farmer contributes to the group CER only when the lottery risk is moderate. After participating in the group elicitation, individual farmers also become as risk averse as the group on average. Specifically, the median and the least-risk-averse farmers become significantly more risk averse while the most-risk-averse farmer is unaffected. Our results show that policymakers should carefully consider how social interactions in rural communities affect individual and group risk preference and whether social interactions also affect the participation and effectiveness of development programs.     

The response of Australian firms to AASB 138 disallowing the recognition of internally generated identifiable intangibles

This paper responds to a call by the Australian Accounting Standards Board to investigate how Australian firms responded to a perceived loss of information pursuant to AASB 138 (IAS38) which mandated the de-recognition of previously recognised internally generated identifiable intangibles, from its effective date of 1 January 2005. We find that the sample firms did not choose to provide alternative or substitute disclosure elsewhere in their annual report or financial statements anytime during our sample period (2005–2010). Prima facie, this is surprising given prior evidence from the value relevance literature that disclosures relevant to the value of internally generated intangibles are correlated with firm value and presumably informative for investors. However, we caution against the drawing of simple conclusions that this finding implies alternative disclosure may not be valuable. Rather, it is important to understand the forces or frictions that contribute to this result. Schipper (The Accounting Review, 82, 2007, 301) and Skinner (Accounting and Business Research, 38, 2008, 191) offer valuable insights into the potential issues such as the costs of alternative disclosure including proprietary costs of disclosing competitive information and, the lower credibility of financial disclosures outside of audited financial statements. These are important considerations in the on-going standard-setting debate on recognition versus disclosure of value relevant information on intangible assets.