What factors drive the price–rent ratio for the housing market? A modified present-value analysis

We consider which factors determined the price–rent ratio for the housing market in 18 U.S. metropolitan statistical areas (MSAs) and at the national level over the period of 1975–2014. Based on a present-value framework, our proposed empirical model separates the price–rent ratio for a given market into unobserved components related to the expected real rent growth and the expected housing return, but is modified from standard present-value analysis by also including a residual component that captures non-stationary deviations of the price–rent ratio from its present-value level. Estimates for the modified present-value model suggest that the present-value residual (PVR) component is always important and sometimes very large at the national and MSA levels, especially for MSAs that have experienced frequent booms and busts in the housing market. In further analysis, we find that house prices in MSAs that have larger PVR components are more sensitive to mortgage rate changes. These are also the MSAs with less elastic housing supply. Also, comparing our results with a recent statistical test for periodically-collapsing bubbles, we find that MSAs with large estimated PVR components are the same MSAs that test positively for explosive sub-periods in their price–rent ratios, especially during the 2005–2007 subsample. Our approach allows us to estimate the correlation between shocks to expected rent growth, the expected housing return, and the PVR component. We find that the expected housing return and movements in the PVR component are highly positively correlated implying an impact of the expected housing return on house prices that is amplified from what a standard present-value model would imply. Our results also show that most of the variation in the present-value component of the price–rent ratio arises due to the variation in the expected housing return.     

A free retail investment market?

Retail financial services regulation under the Financial Services Act of 1986 has been a disaster, and Labour plans to reform it promise to be little better. This paper suggests a better approach - a free market approach sbased on the principles of free competition, caveat emptor , utmost good faith, disclosure and summary redress of grievance. This regime would be both efficient and equitable, and the existing army of regulatory bodies could be disbanded.     

Does the stock market really cause unemployment? A cross-country analysis

This study examines the relationship between the stock market and unemployment in 30 advanced and 11 developing and emerging countries. The results show that the unemployment rate and stock prices are cointegrated in all country groups; further, the causality between stock prices and unemployment appears in all country groups. Specifically, I found a particularly strong and one-way causal direction from stock prices to the unemployment rate in G7 countries. There is a strong bilateral causal relationship between stock prices and unemployment for other advanced countries. However, in the 11 developing and emerging countries, the causality test results indicate a strong Granger causality from unemployment to stock prices. The results for developing and emerging countries suggest that the unemployment rate can help forecast stock prices, but not vice versa. These findings complement existing studies and deliver useful implications for investors and policymakers, and suggest some new lines for future research.     

Can structural change explain the Meese-Rogoff puzzle?

This paper provides empirical evidence suggesting that fundamentals matter for stock price fluctuations once temporal instability underpinning stock price-relations is accounted for. Specifically, this study extends the out-of sample forecasting methodology of Meese and Rogoff (J Int Econ 14:3–24 (1983)) to the stock market after explicitly testing for parameter nonconstancy using recursive techniques. The predictive ability of a present value model based on Imperfect Knowledge Economics (IKE) is found to match that of the pure random walk benchmark at short forecasting horizons and to perform significantly better at medium to longer-run horizons based on conventional measures of predictability and direction of change statistics. In addition, the presence of a cointegrating relation is found only within regimes of statistical parameter constancy. Augmenting the MR methodology in a piecewise linear fashion yields empirical results in favor of a fundamentals-based account of stock price behavior overturning the recent results of Flood and Rose (2010).     

Do price limits hurt the market?

Under an artificial stock market composed of bounded-rational and heterogeneous traders, this paper examines whether or not price limits generate the negative effects on the market. Through testing the volatility spillover hypothesis, the delayed price discovery hypothesis, and the trading interference hypothesis, we find that no evidence of volatility spillover is observed. However, the phenomena of delayed price discovery and trading interference indeed exist, and their significance depends on the level of the price limits.     

Does bond market development enhance the banking sector’s efficiency in resource allocation? Industry-level evidence from Korea

Korea’s financial system used to be bank-based, with banks playing the leading role in financing corporations. As highlighted by Park et al. (2019), however, bond markets have developed rapidly in Korea and other Asian countries. The corporate bond market competes with banks as a source of finance for large borrowers. As such, bond markets may affect banking sector operation, a process known as disintermediation. In this paper, we examine whether bond market development improves the efficiency of resource allocation in Korean bank lending. We propose two channels through which bond market development affects the efficiency of bank lending. Since the two channels have opposing effects on the efficiency of banking, the issue must be settled by empirical analysis. We find that bank loans are much less efficient than bond financing in allocating resources across industries. Furthermore, banks are particularly inefficient in resource allocation in industries that rely more on bond financing. This suggests that competition from bond financing does not improve allocative efficiency of bank loans.     

Is the housing market set to fall?

Some analysts have suggested that house prices are set to collapse, particularly in the London area. These conclusions are generally based on a rather simple analysis of house price to income ratios. We argue that this is misleading and there is little evidence to suggest a collapse in the market.     

Does the market provide sufficient employment protection?

We ask whether there is an efficiency rationale for public intervention in the form of an employment protection policy. Unlike most of the literature supporting current employment protection legislation we allow employers and workers to include severance payments in their private contracts. We focus attention on a model where firms learn over time about the value of the match. If future wage bargaining cannot be prevented, and even though severance payments may be part of the equilibrium contract, separations are too frequent (private employment protection is insufficient). Mandatory severance payments are not a remedy for this inefficiency. Instead, a Pigouvian tax/subsidy scheme will correct the inefficiency by enhancing employment protection.     

Are Google searches making the Bitcoin market run amok? A tail event analysis

This paper aims at detecting extreme value spillover between the large co-movements of Bitcoin returns and the rate of change in investor attention (for which Google search is used as a proxy). For this purpose, we use the concept of the Granger causality in tail event. Thus, we test whether positive, or negative, extreme values of rate of change in Google searches have a significant predictive power for negative, or positive, large values of Bitcoin returns, and vice versa . Our results shed light on a unidirectional causality effect from the returns to investor attention in the first place, before becoming bidirectional when the time delay increases.     

Do labor market institutions matter for business cycles?

Using panel data of 19 OECD countries observed over 40 years and data on specific labor market reform episodes we conclude that labor market institutions matter for business cycle fluctuations. Spearman partial rank correlations reveal that more flexible institutions are associated with lower business cycle volatility. Turning to the analysis of reform episodes, wage bargaining reforms increase the correlation of the real wage with labor productivity and the volatility of unemployment. Employment protection reforms increase the volatility of employment and decrease the correlation of the real wage with labor productivity. Reforms reducing replacement rates make labor productivity more procyclical.     

Is labour market training a curse for the unemployed? Evidence from a social experiment

In 1994 a social experiment was conducted in Denmark, where unemployed applicants for classroom training were randomised into treatment and control groups. The data are contaminated by the presence of no‐shows and crossovers, biasing the traditional experimental estimator. We interpret our experiment within an economic model of agents maximising outcomes facing different cost regimes and present results interpretable within this model. Surprisingly, we find that classroom training significantly increases individual unemployment rates and decreases employability. We discuss possible reasons for this finding and some related policy issues. Copyright © 2009 John Wiley & Sons, Ltd.     

What drives the liquidity premium in the Chinese stock market?

This paper examines the dynamics of the liquidity premium in the Chinese stock market by adopting a multivariate decomposition approach to measure the individual contributions of various driving forces of the premium (such as firm size, idiosyncratic volatility, and market liquidity betas). By employing a wide range of liquidity measures, we show that liquidity premium is generally significant in the Chinese stock market. Furthermore, this premium is increasing in recent years starting from 2011; this observation is different from the United States market, in which the premium has declined over the years. Moreover, the multivariate decomposition approach highlights several asset pricing factors as the main driving forces of the premium. Based on the Amihud liquidity measure, the decomposition approach indicates that the size factor contributes 45–65% to the liquidity premium. However, the measure based on turnover suggests that idiosyncratic volatility accounts for at least 60% of the liquidity premium. In contrast, the global market liquidity beta does not significantly contribute to the premium. However, there is some evidence that the local market liquidity beta has become more significant in its impact on the premium during the period from 2011 to 2015. Our results imply that the findings on the liquidity premium in the Chinese stock market could be sensitive to the liquidity measure used and period of analysis.     

Is the secondary loan market valuable to borrowers?

In recent years, the secondary loan market has developed into an over-the-counter market where loans are not only sold but also subsequently traded. This shift away from traditional banking is altering the business of lending. Loan sales are valuable to banks because they free up capital, generate fee-based income and facilitate risk management; but they may be costly to borrowers because they negatively affect bank monitoring incentives. In this paper, however, we argue that there is another potential benefit to borrowers from loan sales. Borrowers with trading loans, in particular those with liquid loans, may “demand” a share of bank benefits from loan sales when they take out new loans as it will be easier for banks to sell these loans afterwards. We investigate this potential benefit of the secondary loan market by comparing the interest rates borrowers pay before their loans start to trade with the interest rates they pay on loans originated post-trading. Our results show that, on average, borrowers pay higher spreads on the loans they take out after the onset of trading on their loans. Importantly, our results also show that borrowers with liquid trading loans are able to borrow at lower interest rates after the onset of trading on their loans. Thus, while the banks’ decision to sell loans may initially impose a cost on borrowers, those whose loans enter the secondary loan market and become liquid benefit from an interest rate discount on their subsequent loans.     

Are the effects of minimum wage on the labour market the same across countries? A meta-analysis spanning a century

The effects of the minimum wage (MW) on the labour market have been studied for almost a century, but the results remain inconsistent. To review what is known until now, a global, multilingual database of 588 articles on MW effects is constructed spanning more than a century, from 1900 to 2020. Most of the studies belong to developed countries, and less than a third come from developing countries. The most researched subject during the period under review is the impact of the MW on employment, but the evidence is mixed independently of the country studied. Consequently, it is only possible to perform a meta-regression to suitably evaluate the impact of the MW on employment according to the number of studies collected on this topic. The meta-regression model is useful to explain the reasons for these differences. For this purpose, recently developed meta-analysis methods are implemented distinguishing between developed and developing countries. To the best of our knowledge, this is the first meta-analysis that reviews articles on the effect of MW without limits on the analysis period, the variables relative to the labour market or the countries under consideration. The results show a negative publication bias for developed countries but not for developing countries. The impact of the MW on employment is negative in both groups, adjusting for that bias. This adverse effect is small but robust. Characteristics related to the control variables, the demographic groups concerned, the methods implemented and the inclusion of local fixed effects, trend or time dummies account for the estimated employment effect. Public policy recommendations are proposed based on the studies reviewed.     

A governance puzzle to be solved? A systematic literature review of fragmented sustainability governance

Management Review Quarterly - To address global sustainability challenges, adequate governance solutions are needed. Yet, sustainability governance is typically fragmented. This fragmentation poses...     

Would the payment of market rates for non‐executive directors strengthen charity governance?

This paper considers the academic literature suggesting that the governance and management of charities is far from perfect, a problem that is frequently attributed to the difficulty charities have in recruiting suitable people to act as trustees. The paper raises the question of whether charity governance has a value — and a price worth paying for. The paper describes research carried out to test the attitude of a section of potentially suitable managers to charity trusteeship and to remuneration for such responsibilities. It concludes that there are substantial numbers of able trustees willing to serve on a voluntary basis; the perceived shortage is more likely to arise from charities' own recruitment failings than from a shortage of supply. But it also concludes that the supply of suitable trustees could be doubled if reasonable remuneration were offered, and there is some evidence that existing trustees might give higher priority to their duties if they were paid. Results are based on a sample of just over 100 responses, but a further survey is in progress. Initial results broadly confirm the results reported here. Further research to explore the desirability and practicality of paying charity trustees is indicated. Copyright © 2001 Henry Stewart Publications     

Can platform competition support market segmentation? Network externalities versus matching efficiency in equity crowdfunding markets

We investigate whether, in spite of the existence of cross‐market network externalities, platform competition can lead to segmentation of the two sides of the market served by the platforms. We address this question in the context of competition between two equity crowdfunding platforms that connect startups looking for capital with prospective investors. Given the heterogeneity in the populations of startups and investors in terms of the riskiness of the former population and the degree of risk aversion of the latter population, we investigate whether there exists an equilibrium where the two populations are segmented to ensure an improved match between them. We find that the segmenting equilibrium can arise only when compatibility in terms of their risk profiles is of high importance to both populations, and compatibility is significantly more important than the size of the network externality considered by startups. Segmentation is likely to improve the welfare of both populations when the basic benefit from any kind of match is relatively high.     

The more the merrier? On the optimality of market size restrictions

Review of Economic Design - This paper provides a novel rationale for the regulation of market size when heterogeneous firms compete. A regulator seeks to maximize total welfare by choosing the...     

How does the money market development impact the bank lending channel of emerging Countries? A case from China

Transforming from quantitative-based instruments to price-based instruments is the primary goal of the monetary policy transformation in emerging economies. In essence, this process is gradually replacing the interest rate channel with the credit channel from the perspective of the monetary policy transmission mechanism, which is mainly achieved by promoting financial development to reduce the financial friction. However, there are opposite effects of financial development on the bank lending channel; thus, the topic is controversial. Using banks’ data from 2010 to 2018, this paper studies whether and how the money market development weakens the effect of the bank lending channel in China. The result shows that the mechanism through which the money market development influences the bank lending channel is realized by affecting the substitution elasticity of the asset and liability structure of banks’ balance sheets. Different from the theoretical expectation, the effect of the money market development on the bank lending channel is nonsignificant in China but appears to be weakened when the interest rate market-oriented reform is considered. However, further research based on structural analysis demonstrates that the money market development exerts heterogeneous effects on the bank lending channel under different types of sub-markets and different characteristics of the banks considered.