Risk management of real estate: The case of real estate swaps

Real estate swaps are a recent financial innovation based upon the principle of comparative advantage. A real estate swap is a useful tool for real estate risk management and for participating in real estate investment without the high costs associated with real estate. Potential economic benefits and costs associated with real estate swaps are considered and real estate swaps are compared to alternative tools for real estate risk management. The expected utility and effectiveness of risk management with a swap in a multiperiod framework are analyzed. The analysis finds that the subject property's return and its risk characteristics (as reflected in its correlation with interest rate and property index returns) delimit the risk management potential of a given swap position. Optimal swap positions are shown for various regions and property types based on historical return series, from the period between 1983 and 1992, and the parameters of the dynamic model developed.     

Informatics and society: Will there be an ‘information revolution’?

The claim that an information revolution is underway is scrutinized in this paper. Particular attention is given to the notions that new information technology will radically increase human choice and rationality in decision-making. The literature on informatics and technology is selectively reviewed in order to determine whether (1) the present use of technology seems to predict an increased choice and rationality in the future; (2) earlier technologies have had this effect; and (3) past social predictions of this type have proven generally correct. We reach a mixed or negative conclusion in every case. Although the possibility of an information revolution cannot be dismissed, neither can it be readily accepted at this point unless we significantly diminish what is normally meant by a ‘revolution’. Lorne Tepperman is Professor of Sociology at the University of Toronto. His most important publications are:Social Mobility in Canada (1975);Crime Control: The Urge Toward Authority (1977);The Roots of Disunity (1979), with David Ball. Originally presented at a symposium on “Computers and Society”, held at Ryerson Polytechnical Institute, Toronto, on January 30, 1984.     

Equilibrium Underdiversification and the Preference for Skewness

We develop a one-period model of investor asset holdings whereinvestors have heterogeneous preference for skewness. Introducingheterogeneous preference for skewness allows the model's investors,in equilibrium, to underdiversify. We find support for our model'sthree key implications using a dataset of 60,000 individualinvestor accounts. First, we document that the portfolio returnsof underdiversified investors are substantially more positivelyskewed than those of diversified investors. Second, we showthat the apparent mean-variance inefficiency of underdiversifiedinvestors can be largely explained by the fact that investorssacrifice mean-variance efficiency for higher skewness exposure.Furthermore, we show that idiosyncratic skewness, and not justcoskewness, can impact equilibrium prices. Third, the underdiversificationof investors does not appear to be coincidentally related toskewness. Stocks most often selected by underdiversified investorshave substantially higher average skewness—especiallyidiosyncratic skewness—than stocks most often selectedby diversified investors.     

Caring About Sunk Costs: A Behavioral Solution to Holdup Problems with Small Stakes

Economics students need to be taught that opportunity costsare important for optimal decision making but that sunk costsare not. Why should this be? Presumably these students havebeen making optimal decisions all their lives, and the conceptsshould be easy for them. We show that caring about sunk costscan help agents achieve efficient investments in a simple teamproduction environment. Furthermore, the solution we proposeis uniquely efficient if the environment is sufficiently complex.Hence, in addition to explaining contract form and ownership(Williamson, 1975; Hart, 1995), studies of the holdup problemmay also provide insights into observed behavior in day-todaybilateral bargaining problems.     

A social forecast revisited

In 1971, the authors produced a 30-year forecast of leisure in the UK. In 2001 they obtained survey data for comparison with the forecasts. The paper presents the original forecasts and describes the methods used to produce them, assesses their accuracy in the light of the survey data, and concludes with some reflections on the underlying forecasting methodology and on changes in leisure patterns.     

Institutions and concentration

In a new dataset of 1.3 million firms from over 100 countries, I establish a number of regularities in cross-country differences in economic concentration. Concentration of sales and employment is substantially higher in smaller countries and in less-developed countries; these two factors alone explain roughly half the cross-country variation in concentration. Nevertheless, a number of institutional factors offer additional explanatory power for concentration. Concentration is higher in countries with higher entry costs for new firms, in countries with weaker antitrust policy, in countries with less financial development, in countries with weaker rule of law, and in countries with more burdensome regulation. Weak institutions are associated with higher concentration especially in industries that do not have naturally high levels of concentration. In addition, the relationships between institutions and concentration are more pronounced in nontradable and investment-intensive industries, suggesting that natural barriers to competition facilitate the monopolization of sectors especially when institutions are weak.     

The Financial Performance of Ethical Investment Trusts: An Australian Perspective

This study examines whether differences in financial performance exist for investment trusts which base their portfolio selection primarily on an ethical screen, compared to indexes which incorporate a broader spectrum of investments. Results indicate that on a risk-adjusted basis there is an insignificant difference in the financial performance of these trusts against three common market benchmarks. However as to the extent of the directional effect, there does exist slightly superior financial performance by ethical trusts against their respective industry average indexes, but an underperformance against a smaller company's index and the market as a whole. The lack of a distinct advantage in the short to medium term for applying an ethical screen, may in part be due to the recent development of ethical investments in Australia. Stronger performances by older ethical investment trusts may indicate superior returns are more likely to occur over a longer term.     

Why Have Debt Ratios Increased for Firms in Emerging Markets?

I study trends in capital structure between 1980 and 2004 in a sample of over 11,000 firms from 34 emerging markets. The average firm's market‐value debt ratio rose by 15 percentage points over this quarter century. I study how this rise in leverage was influenced by firm‐level factors and by the availability of debt financing at the country level. The central finding is that the increase in debt ratios can largely be attributed to changes in the characteristics of emerging market firms over this period. For the average firm, the most prominent determinants of capital structure – size, profitability, asset tangibility, and growth opportunities – all shifted in the direction implying a higher optimal level of debt. At the country level, increased financial development within the country is associated with lower debt ratios, but increased financial openness to foreign markets is associated with higher debt ratios.     

Understanding frame‐of‐reference training success: a social learning theory perspective

Employing the social learning theory (SLT) perspective on training, we analysed the effects of alternative frame‐of‐reference (FOR) training protocols on various criteria of training effectiveness. Undergraduate participants (N = 65) were randomly assigned to one of four FOR training conditions and a control condition. Training effectiveness was determined via trainee reactions, learning and rating accuracy. The results partially supported the study hypotheses: compared to the control group, the more comprehensive FOR training conditions evidenced: (1) significantly higher rating accuracy; (2) significantly higher levels of learning; and (3) more favorable reactions to the training. The discussion focuses on the implications of the results for protocol development when designing FOR training programs.