Empirical analysis of the average asset correlation for real estate investment trusts

The credit risk capital requirements within the current Basel II Accord are based on the asymptotic single risk factor (ASRF) approach. The asset correlation parameter, defined as an obligor's sensitivity to the ASRF, is a key driver within this approach, and its average values for different types of obligors are to be set by regulators. Specifically, for commercial real estate (CRE) lending, the average asset correlations are to be determined using formulas for either income-producing real estate or high-volatility commercial real estate. In this paper, the value of this parameter was empirically examined using portfolios of U.S. publicly-traded real estate investment trusts (REITs) as a proxy for CRE lending more generally. CRE lending as a whole was found to have the same calibrated average asset correlation as corporate lending, providing support for the recent U.S. regulatory decision to treat these two lending categories similarly for regulatory capital purposes. However, the calibrated values for CRE categories, such as multi-family residential or office lending, varied in important ways. The comparison of calibrated and regulatory values of the average asset correlations for these categories suggests that the current regulatory formulas generate parameter values that may be too high in most cases.     

Do Investment Newsletters Move Markets?

We analyze the market impact of stock recommendations made by a single investment newsletter that focuses on instances of heavy insider trading. The market reacts positively to the actual insider trades and the associated Form 4 Securities and Exchange Commission (SEC) filings that attracted the newsletter's interest. The subsequent recommendations, which occur within a delay of several days, are associated with an even larger announcement period return and higher trade volume. Thus, despite the fact that recommendations are largely based on publicly available information on insider trades and the reach of the newsletter is limited, the newsletter has a significant impact on the market.     

Default and bankruptcy in an entrepreneurial economy with incomplete markets

We build a general equilibrium model with incomplete markets, production, default, and bankruptcy. The existence of equilibrium is proved. Theoretically, under appropriate conditions, we show that the reduced-form entrepreneurial equilibrium and profit-maximization entrepreneurial equilibrium, as defined by Magill and Quinzii (1996), are equivalent. In addition, we find an inverse relationship between the economy real interest rate and the probability of default. This result is empirically tested by applying the Cox proportional hazards model with time-dependent covariates for a sample of sole proprietorships’ unsecured credit operations in the Brazilian economy. The estimates confirm the findings from the theoretical model.     

Tail dependence risk exposure and diversification potential of Islamic and conventional banks

This paper undertakes a rolling window comparative analysis of risks for portfolios consisting of GCC Islamic and conventional bank indices. We draw our empirical results by employing canonical, drawable and regular vine copula models, as well as by implementing a portfolio optimization method with a conditional Value-at-Risk constraint. We find evidence of higher riskiness in the group of Islamic banks relative to the group of conventional banks across each of the financial rolling window scenarios under consideration. Specifically, a greater negative (nonlinear) tail asymmetric dependence is observed in the pairs of Islamic banks’ relationships. The results also show that the optimal portfolio model supports a clear preference towards the group of conventional banks in regard to risk minimization and diversification benefits.     

Learning before the storm: Modeling multiple stakeholder activities in support of crisis management,a practical case

The severe consequences of a Critical Infrastructure (CI) crisis demand continued research directed toward proactive and reactive management strategies. Despite the best efforts of governments and communities, the diversity of stakeholders, conflicting demands for resources, and a lack of trust among organizations create complexities that limit the effectiveness of the response. This paper identifies four specific problems that appear to reoccur when CIs are challenged: heterogeneity, multiple and inconsistent boundaries, resilience building and knowledge transfer and sharing. A combination of collaborative modeling and software simulation methodologies is proposed in order to identify the interrelationships among diverse stakeholders when managing the preparation for and reaction to a CI crisis. This approach allows experts to work together and share experiences through the modeling process which can lead them to a better understanding of how other organizations work and integrate different perspectives. In addition, simulation models enable domain experts to understand the consequences of certain policies in the short and long terms, thus improving the crisis managers' knowledge for future crisis situations. This paper presents a practical case of a hypothetical crisis in the CI sector and the approach used in order to deal with the four problems identified above.     

Unbundling tolls from contracts: a new road PPP model

Considerable evidence from different countries has revealed important shortcomings in most road public–private partnership (PPP) models. In this paper a new PPP model is presented that overcomes some of the problems found in PPP road contracts. The new model is based on separating user tolls from the fees paid to PPP contractors and setting up new institutional arrangements to oversee PPPs.     

Social expertise: a new view to explain spatial divergences in personal consumer loan prices

The objective of this paper is to explain geographical divergences in interest rates on personal loans to households using aggregated consumer knowledge-related metrics as predictors. The researchers quantitatively test their approach in countries in the Eurozone and in the Italian and Spanish regions. Social expertise explains between 69% and 84% of variance in household loan market prices at an international and inter-regional level. The approach taken is tested using real market data established after real service encounters and not published or recommended prices.     

Leakage,entrepreneurship, and satisfaction in hospitality

Tourism is a very important tool for economic development. However, its economic effects are mainly conditioned by the level of leakage. This work defines leakage, provides an original evaluation of the entrepreneurial environment in showing that it is the one with the lowest level of leakage, and creates a new framework. It also measures leakage in an innovative way using a quantitative approach. In addition, the paper explores and shows how leakage can affect critical business factors, such as customer and employee satisfaction. The empirical study uses structural equations and data from hotels in the Valencian Region (Spain) to show how important leakage is in making businesses more competitive. The results confirm the new model and are of interest for company managers and public organizations.     

Which farmers benefit the most from Bt corn adoption? Estimating heterogeneity effects in the Philippines

The potential contributions of new biotechnologies to sustainable food and income security have been the subject of widespread discussions around the turn of the 21st century. But distributional issues of which segments of adopters of genetically modified (GM) crops benefit the most have not been given ample attention). Using propensity scores, we apply the (a) stratification‐multilevel method of estimating heterogeneous treatment effects; and the (b) matching‐smoothing method of estimating heterogeneous treatment effects proposed by Xie et al. We find that the incidence of higher yields, lower insecticide use, and reduced seed utilization in the Philippines diminishes progressively as a farmer's propensity to adopt Bt corn increases. Farmers with a low propensity to adopt Bt are those who farm smaller, nonirrigated farms located farther from seed suppliers and farmers without previous training on pest identification. In most cases, while these farmers are typically poorer farmers in smaller parcels, cannot afford irrigation and are situated in remote areas away from easily accessible seed suppliers, there is no evidence, however, that profits differ across farmers with varying propensities to adopt the Bt variety.     

A regime-switching analysis of pass-through

We empirically investigate how various economic factors affect the changes in the pricing policies of exporters, in particular changes in the exchange rate pass-through. Assuming exporters set prices following either a high or a low pass-through pricing policy, and assuming that the transition probabilities between these pricing policies depend on market concentration, exporting country??s market share and monetary stability, we estimate a Markov regime-switching model, using data we have collected on imported cars to the United States. Our findings show that the ??low pass-through?? regime is characterized by: lower exchange rate pass-through, low response to misalignments in the firm??s relative price, low volatility of exogenous shocks, and higher duration. When we decompose the changes in the pass-through in our sample, we find that monetary stability has been the most important factor behind the decline in the pass-through. Monetary stability explains more than 50% of the decline in the exchange rate pass-through, while country market share and market concentration explain about 25 and 10%, respectively.