Stickiness of Rental Rates and Developers’ Option Exercise Strategies

In this study we incorporate sticky rents into a real options model to rationalize the widely documented overbuilding puzzle in real estate markets. Given the assumption that developers’ objective function is to maximize total revenue by selecting an optimal occupancy level, our model provides a better explanation of the phenomena we observed in the real world than the traditional market-clearance based real options models. We also show that developers’ exercise strategies can be affected by the size and the type of property markets. In other words, developers’ exercise strategies could differ among markets and under different conditions. Submitted to Cambridge—Maastricht 2005 Symposium.     

Exploitation versus exploration in multinational firms: Implications for the future of international business

Given the economic weight of multinational corporations and their privileged access to resources, many different scenarios can be built about the future of international business and about the future impact of international business on economic, technological, and social development. In this paper, we argue that multinationals do not form a uniform organisational population, and we provide empirical evidence of the existence of traditional, rigid entities seeking benefits from low-risk exploitative strategies on one hand, and of flexible multinationals seeking higher performance levels by balancing the trade-offs between exploration and exploitation on the other hand. As these two sub-populations compete with one another for resources, we use a population ecology perspective to study likely ecological scenarios for the future. Our conclusion is that traditional multinationals tend to prevail over flexible multinationals, and the conditions required for a future society to allow a genuine growth of flexible multinationals are unlikely. This implies that multinationals remain primarily exploitative, and that as such, they will only be associated with marginal economic, technological, and social developments in the future. Other organisational forms, such as entrepreneurial small business and communities of practices are shown to be much more likely vehicles through which society can progress and innovate.     

Ownership structure and corporate voluntary disclosure in Hong Kong and Singapore

Drawing on prior empirical research based on disclosure behavior in developed western markets, this study examines the association of ownership structure with the voluntary disclosures of listed companies in the Asian settings of Hong Kong and Singapore. An analysis of annual reporting practices shows that the extent of outside ownership is positively associated with voluntary disclosures. In particular, the results also indicate that the level of information disclosure is likely to be less in “insider” or family-controlled companies, a significant feature of the Hong Kong and Singapore stock markets.     

Growth to value: Option exercise and the cross section of equity returns

We propose a general equilibrium model to study the link between the cross section of expected returns and book-to-market characteristics. We model two primitive assets: value assets and growth assets that are options on assets in place. The cost of option exercise, which is endogenously determined in equilibrium, is highly procyclical and acts as a hedge against risks in assets in place. Consequently, growth options are less risky than value assets, and the model features a value premium. Our model incorporates long-run risks in aggregate consumption and replicates the empirical failure of the conditional capital asset pricing model (CAPM) prediction. The model also quantitatively accounts for the pattern in mean returns on book-to-market sorted portfolios, the magnitude of the CAPM-alphas, and other stylized features of the cross-sectional data.     

Real investment and risk dynamics

We ask to what extent the negative relation between investment and average stock returns is driven by risk. We show that: (i) the average return spread between low and high asset growth and investment portfolios is largely accounted for by their spread in systematic risk, as measured by the loadings on the Chen, Roll, and Ross (1986) factors; (ii) as predicted by q-theory and real options models, systematic risk falls during large investment periods; (iii) the returns of factors formed on the investment-to-assets, asset growth, and investment growth all forecast aggregate economic activities. Our evidence suggests that risk plays an important role in explaining the investment-return relation.     

Mortgage Put Options and Real Estate Markets

In this paper we offer direct evidence that financial intermediation does impact underlying asset markets. We develop a specific observable symptom of a banking system that underprices the put option imbedded in non-recourse asset-backed lending. Using a dataset for 19 countries and over 500 real estate investment trusts, we find that, following a negative demand shock, the “underpricing” economies experience far deeper asset market crashes than economies in which the put option is correctly priced.

Real (adaptation) options and the valuation of equity: some empirical evidence

Data from 1,374 firms across four broad industrial groupings are used to assess the contribution that real (adaptation) options make to overall equity values. The analysis indicates that real (adaptation) options make a significant contribution to the equity value of firms with a market to book ratio (of equity) of around unity or less. As the market to book ratio grows beyond this level, however, the contribution made by real (adaptation) options decays quickly away and equity values are mainly comprised of the present value of the dividends that firms are expected to pay. This means that for around one in every five of the firms in our sample real (adaptation) options make a significant contribution to overall equity value. Thus, while linear equity valuation models would seem to be appropriate for the substantial majority of firms on which our sample is based, there is a sizeable minority of firms where real (adaptation) options have a significant impact on equity values. For this latter group of firms there will be a non-linear relationship between equity value and its determining variables. This has important implications for the regression procedures that are applied in this area of accounting research.     

International interest rates and US monetary policy announcements: Evidence from Hong Kong and Singapore

This paper investigates the responses of market interest rates to US monetary policy announcements for the US and two emerging economies, Hong Kong and Singapore which are similar on many respects but have experienced opposite exchange rate regimes in the last twenty years. Our results, based on market expectations extracted from federal fund futures rates, document that FOMC announcements significantly affect the term structure of interest rate in the US and both Asian countries. Further, international interest rate differentials around FOMC meeting dates tend to be negative for short maturities with the impact gradually dissipating as bond maturity increases. Finally, for the case of Singapore, we find that domestic interest rates react to both external and domestic monetary policy announcements with a magnitude that is larger over the full bond maturity spectrum for domestic announcements. These results are robust to time-varying futures risk premia and alternative measures of interest rates expectations.     

Real options under a double exponential jump-diffusion model with regime switching and partial information

We consider the irreversible investment in a project which generates a cash flow following a double exponential jump-diffusion process and its expected return is governed by a continuous-time two-state Markov chain. If the expected return is observable, we present explicit expressions for the pricing and timing of the option to invest. With partial information, i.e. if the expected return is unobservable, we provide an explicit project value and an integral-differential equation for the pricing and timing of the option. We provide a method to measure the information value, i.e. the difference between the option values under the two different cases. We present numerical solutions by finite difference methods. By numerical analysis, we find that: (i) the higher the jump intensity, the later the option to invest is exercised, but its effect on the option value is ambiguous; (ii) the option value increases with the belief in a boom economy; (iii) if investors are more uncertain about the economic environment, information is more valuable; (iv) the more likely the transition from boom to recession, the lower the value of the option; (v) the bigger the dispersion of the expected return, the higher the information value; (vi) a higher cash flow volatility induces a lower information value.     

The Distributional Efficiency of Alternative Regulatory Regimes: A Real Option Approach

This paper studies the effects of regulatory constraints on firm's irreversible investment decisions. The RPI–x rule is compared to a profit sharing rule, which increases the x factor in case profits go beyond a given level.When the firm has an option to delay investment, these rules have the same impact on investment choices. As profit sharing has a greater ability to extract rents, however, it is more efficient than the RPI–x rule.     

清洁能源发电项目投资决策的实物期权模型及其应用

由于理论方法的假设与实际情况往往存在差异,传统DCF分析方法具有本质缺陷。同时,清洁能源发电项目投资具有很高的不可逆性、不确定性、竞争性和可持续发展特性,因此传统DCF分析方法不太适合清洁能源发电项目投资决策。基于此,本文提出了在清洁能源发电项目投资决策中引入实物期权的思路,并初步讨论了清洁能源发电项目投资的实物期权模型及其与企业策略相结合的方法。     

The Real Options Component of Firm Market Value: The Case of the Technological Corporation

Abstract:   This paper tests whether stock prices reflect investor's expectations regarding the value of real options. The analysis is implemented based on a sample of 391 high‐tech companies listed on main OECD stock markets during the period December 1994 through December 2000. Results confirm the predicted relation between the fraction of a firm's market value not accounted for by its assets‐in‐place, and a series of variables that are assumed to disclose its real options value, variables such as research and development activity, risk and skewness of stock returns, and size. The results are robust even after controlling for valuation date, sub‐industry, country, and alternative measures of risk.     

人民币／美元实际汇率的巴拉萨－萨缪尔森假说检验及政策含义

巴拉萨－萨缪尔森效应是影响一国货币实际汇率变化的重要因素,效应检验过程对一国劳动力供给价格弹性检验也具有重要意义。本文采用实证分析方法,对人民币／美元之间是否存在巴拉萨－萨缪尔森效应进行检验,结果表明,早期人民币／美元之间巴拉萨－萨缪尔森效应并不明显,但分析结果同时显示,近几年巴拉萨－萨缪尔森效应有转明显的迹象。这说明推动人民币升值的因素在增多;同时,我国劳动力市场低弹性大量供给现象也在发生改变,这些对我国汇率和就业政策制定都具有重要参考意义。     

房地产投资和金融支持实体经济的交互影响研究--基于环沪都市圈的分析

基于房地产市场与金融发展的紧密关系,本文将房地产投资、金融发展与实体经济发展纳入同一框架进行综合研究。首先梳理房地产、金融效率的环沪都市圈1发展现状,深入探讨房地产、金融与宏观经济增长的作用机制。然后以2003~2016年环沪都市圈为样本,采用交互效应模型分析房地产投资通过金融体系间接影响经济发展的综合效应。分析得到的主要结论包括:环沪都市圈房地产投资对实体经济发展整体呈现一定的负向作用,主要是抑制了金融支持实体经济的效率,两者负相关系数为0.75;经实证研究进一步发现,在经济发展水平较弱、金融化程度越高的城市群,房地产投资对金融支持实体经济效率的抑制作用更加显著,是全部样本的2.4倍,这也恰好解释了浙北经济长期落后于苏南的原因。     

Domestic and International Equity REIT Joint Ventures: Structuring Corporate Options

We examine a sample of 185 Joint Ventures parented by publicly-traded Equity Real Estate Investment Trusts 1994–2001. These transactions are found to be motivated by a wide variety of corporate strategies. Shareholder returns for REIT parents are significantly positive, which is consistent with wealth effects previously reported for joint ventures formed by non-REIT real estate firms. In a subsample of joint ventures formed to structure partial dispositions of property, however, abnormal returns are significantly negative, which is consistent with the free cash flow theory of Jensen. REIT joint venture experience in Asia has been neutral for value, but may improve in the future if early ventures have created options for more efficient partnerships later.     

Bargaining Strength and Property Class in Office Markets

This paper examines the influence of bargaining power and property class on the prices of heterogeneous goods. Specifically, it explores the impact of buyer and seller characteristics on the transaction prices of office properties. The empirical model is based on the work of Harding, Rosenthal, and Sirmans (2003), which developed a method to distinguish between the impact of buyer and seller attributes on bargaining power and the choice of otherwise unidentified price effects (i.e., property class) in the context of hedonic price models. The data set contains information on transaction prices of office properties in Cook, DuPage, and Lake Counties, Illinois from 1995 to 1997. The results reveal systematic differences in bargaining power and property class for certain groups of buyers and sellers contained within the sample.     

房地产金融属性的表现及经济含义:以美国房地产市场为例

随着金融自由化及经济资本化的深入,房地产金融属性的增强成为以美国为代表的全球房地产市场发展最大的特点。房地产的异质性被金融属性抹平,而波动的同步性增强,全球房地产市场首次同步繁荣,甚至开始脱离实体经济而自我膨胀。房地产金融属性的增强,使其更容易产生繁荣-萧条式的大幅波动。因此,需适当控制房地产金融属性。