International capital structure differences among the G7 nations: a current empirical view

Historical research domestically and internationally suggests that differences in capital structures exist for industry classification, firm size and nationality. However, the data for most of these previous studies are based on book values, include a limited number of countries, are not up-to-date, and specifically do not cover the period of the late 1980s when there were important developments in the globalization of financial markets. In addition, no single study specifically compares all seven of the world's major industrial nations (G7 Nations). Financial theory would suggest that in an efficient global market the capital structure of identical firms in different nations would be the same. If international market imperfections still exist through the 1980s, current capital structures and costs may be different among similar firms in different nations; and business advantages (or disadvantages) may provide profits (or costs) to firms incorporated in different countries. The intent of this research is empirically to update the literature with recent international data on both a book value and market value basis and to include for the first time in a single study all the G7 Nations. The results suggest significant financial structure differences still exist among the G7 countries. Specifically, on a market value basis France, Italy and Germany tend to use a higher proportion of total debt, US, UK, Canada and Japan tend to use less debt, and France, Italy and Canada tend to use a higher proportion of institutional debt (non-spontaneous funds) than the US, UK, Japan and Germany.     

Accessibility of Computer-based Simulation Models in Inherently Conflict-Laden Negotiations

The use of computer-based simulation models has a long history in areas such as environmental planning and policy-making, and particularly in water management. Policy making in these areas is often characterized by inherent conflict among diverse stakeholders with divergent interests. Although simulation models have been shown to be helpful for such problems, they are typically under the control of a technical analyst or governmental agency and are not available to negotiators in real time. Recent trends in computer technology and user expectations raise the possibility of real-time, user-controlled models for supporting negotiation. But is such accessibility likely to be helpful? This study used a "compressed" longitudinal experiment to investigate the impacts of different scenarios of accessibility of computer-based simulation models. The task was based on a real-life problem in Colorado River water management. Results revealed no significant differences among conditions for either solution quality or satisfaction. These results suggest that the common notion of "more is better" may be inappropriate, and resources for improving computer support of negotiation might best be focused elsewhere.     

Rational Expectations, Market Fundamentals and Housing Price Volatility

This paper derives a forward-looking rational expectations house price model and empirically tests its ability to explain short-run fluctuations in real house prices. A novel approach to proxying the imputed rents of owner-occupied housing, as a function of observable housing market fundamentals, is combined with a housing market arbitrage relation to derive a present value model for real house prices. Tests of the rational expectations, nonlinear cross-equation restrictions reject the joint null hypothesis of rational expectations and the asset-based housing price model for quarterly, single-detached house prices in the city of Vancouver, British Columbia from 1979–1991. The model fails to fully capture observed house price dynamics in two real estate booms but tracks real house prices well in less volatile times, suggesting that prices may temporarily deviate from fundamental values in real estate price cycles.     

The Effect of Regional Growth Characteristics on Regional Housing Prices

As contrasted with strictly national housing reports, this article highlights the regional variations in population growth patterns and recently built owner-occupied housing as a means of determining single-family housing price components (i.e., developed lot values, homebuilding costs, and builder's profit and overhead) by region. The assertion that escalating lot costs and increases in new housing costs will limit the demand for single-family housing is challenged on a national basis and treated individually for the West, Northeast, South, and North Central Regions of the country.     

The Relative Importance of Stock, Bond and Real Estate Factors in Explaining REIT Returns

This paper examines the link between REIT, financial asset and real estate returns, and tests whether it changed subsequent to the “REIT boom” of the early 1990s. The main focus is on answering the question do REIT returns now better reflect the performance of underlying direct (unsecuritized) real estate? We develop and implement a variance decomposition for REIT returns that separates REIT return variability into components directly related to major stock, bond, and real estate-related return indices, as well as idiosyncratic or sector-specific effects. This is applied to aggregate REIT sector (NAREIT) returns as well as returns to size and property-type based REIT portfolios. Our results show that the REIT market went from being driven largely by the same economic factors that drive large cap stocks through the 1970s and 1980s to being more strongly related to both small cap stock and real estate-related factors in the 1990s. There is also a steady increase over time in the proportion of volatility not accounted for by stock, bond or real estate related factors. We also find that small cap REITs are “more like real estate” compared to larger cap REITs, at least over the 1993–1998 period. We argue that this could be a result of the institutionalization of the ownership of larger cap REITs that took place in the 1990s.     

Price-volume Correlation in the Housing Market: Causality and Co-movements

Housing market cycles are featured by a positive correlation of prices and trading volume, which is conventionally attributed to a causal relationship between prices and volume. This paper analyzes the housing markets in 114 metropolitan statistical areas in the United States from 1990 to 2002, treats both prices and volume as endogenous variables, and studies whether and how exogenous shocks cause co-movements of prices and volume. At quarterly frequency, we find that, first, both home prices and trading volume are affected by conditions in labor markets, the mortgage market, and the stock market, and the effects differ between markets with low and high supply elasticity. Second, home prices Granger cause trading volume, but the effects are asymmetric—decreases in prices reduce trading volume, and increases in prices have no effect. Third, trading volume also Granger causes home prices, but only in markets with inelastic supply. Finally, we find a statistically significant positive price–volume correlation; which, however, is mainly explained by co-movements of prices and volume caused by exogenous shocks, instead of the Granger causality between prices and volume.     

HEDGING WITH INTERNATIONAL STOCK INDEX FUTURES: AN INTERTEMPORAL ERROR CORRECTION MODEL

In this paper we extend the traditional price change hedge ratio estimation method by applying the theory of cointegration to hedging with stock index futures contracts for France (CAC 40), the United Kingdom (FTSE 100), Germany (DAX), and Japan (NIKKEI). Previous studies ignore the last period's equilibrium error and short-run deviations. The findings of this study indicate that the hedge ratios obtained from the error correction method are superior to those obtained from the traditional method as evidenced by the likelihood ratio test and out-of-sample forecasts. Using the procedures developed in this paper, hedgers can control the risk of their portfolios more effectively at a lower cost.     

Airport futures: Towards a critique of the aerotropolis model

It is predicted that the twenty-first century will be dominated by air transport, both for domestic and international carriage of passengers and cargo. Thus the airport, as a driver of regional growth, is expected to become more than merely a regional gateway. Rather, it will function as city in itself, with living spaces for workers and their families, factories relying on airborne inputs and service industries located around the airport, with major road and rail infrastructure connected to it. However, the ‘aerotropolis’, as this hub for industry and driver of economic development has been called, has not yet been critiqued adequately, especially from a long-term public policy and planning perspective. This article raises concerns about three different dimensions to the aerotropolis regarding its long-term sustainability, viz., energy provision, the security of critical infrastructure and export pathways. In particular, this article argues that air transport will not replace existing components of international economic development. The authors contend that the three dimensions need to be explored in order to arrive at a more balanced view of the aerotropolis and its place in an increasingly complex global future.