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Wirtschaftsdienst - Prices for energy and food are currently rising extraordinarily sharply. Households with low net incomes in particular are being burdened by the price increases, in some cases...     

A macroeconomic hedge portfolio and the cross section of stock returns

We use a stock's returns on days when important macroeconomic news is released to form a hedge portfolio, which is long (short) in stocks which have a sensitive (insensitive) reaction to the surprise component of the macroeconomic news. This macroeconomic hedge portfolio (MHP) earns a risk premium of about 5% p.a. over time and a similar premium when used as a risk factor in an asset pricing model. This premium can be interpreted as a cost of an insurance against unexpected changes in an investor's marginal utility. We show that risk premiums associated with the MHP are estimated with a higher precision than traditional macroeconomic tracking portfolios. Furthermore, when the MHP is present in a common factor model, risk factors like high minus low lose much of their ability to explain the cross section of stock returns.     

The role of online platforms for media markets — Two-dimensional spatial competition in a two-sided market

We analyze the market for online and offline media in a model of two-dimensional spatial competition where media outlets sell content and advertising space. Consumer preferences are distributed along the style and type of news coverage where the distance costs may vary across dimensions. For integrated provision of online and offline platforms we show that entering the online market reduces average profits and may even constitute a prisoner's dilemma. Specialized provision may yield polarization in the style and type dimensions. This is in contrast to the maximum–minimum differentiation result previously established in the literature on multidimensional horizontal competition. We show that maximal differentiation in both dimensions occurs due to the discrete nature of the type dimension and asymmetric advertising markets.     

Spatial Variation in Reverse Mortgages Usage: House Price Dynamics and Consumer Selection

Reverse mortgages have been obtained by nearly one million senior households. In the future, the number of eligible households will grow substantially, about 80 % are homeowners, and many of them have substantial equity in their home. We study state-level variations in rate of originations of HUD’s Home Equity Conversion Mortgage (HECM) product. Our focus is on the impact of house prices on the origination rate. We test the hypothesis that in states where real house prices are volatile and the current level is above the long term norm, seniors rationally anticipate future reductions in house prices and lock-in their housing equity gains by obtaining a reverse mortgage. We test alternative hypotheses, the first being that seniors living in states with high rates of house price appreciation increase their use of HECMs as a means to convert an illiquid wealth capital gain into a more liquid asset. A second alternative hypothesis is that the intertemporal changes in originations of HECMs were a result of changes in the supply of mortgage originators. Our empirical work supports the hypothesis that seniors used HECMs to insure against house price declines, but we find no evidence in support of the alternative hypotheses.     

The Determinants of Subprime Mortgage Performance Following a Loan Modification

We use vector error correction models to examine the interdependence between the high and the low price tiers during the latest housing market boom and bust. For 118 of the 364 US statistical areas analyzed, the tiered price indexes are bound by a long-run relationship. In general, low tier homes appreciated more than high tier homes in the past two decades. In contrast to previous periods of high volatility, however, low tier homes appreciated more during the boom and lost more value during the bust of the market. We find a shift in the long-run equilibrium during the bubble —the cointegration parameter that ties the tiers together is greater in absolute value during the bubble period compared to the periods of more moderate appreciation and depreciation rates. Moreover, the shift in the long-run equilibrium can be explained by differences in subprime originations across housing markets. We also find that short run price dynamics is driven by momentum in both segments of the market.     

Are There Rational Bubbles in REITs? New Evidence from a Complex Systems Approach

This study applies a complex systems approach to test for the presence of rational bubbles in the Equity REITs market. The applied model is based on theoretical implications of the evolution of prices under rational bubble regimes. The advantage of the approach is twofold. The model is able to detect rational bubbles while they rise and to predict the most likely time of their collapse. We apply the model to daily price data on U.S. Equity REITs from 1989 to 2011. Our findings suggest the existence of a bubble for the period of 2003 to 2007. Tests for sub-markets reveal that the bubble developed in the Residential REITs market, but not in the Office REITs market.     

The pricing of temperature futures at the Chicago Mercantile Exchange

This paper analyzes observed prices of US temperature futures at the Chicago Mercantile Exchange (CME). Results show that an index modeling approach without detrending captures the prices exceptionally well. Moreover, weather forecasts significantly influence prices up to 11 days ahead. It is shown that valuations of temperature futures relying on a model without detrending yield biased valuations by overpricing winter contracts and underpricing summer contracts. Several trading strategies are devised to exploit the mispricing observed at the CME and to demonstrate that speculating on temperature futures can not only generate high overall returns, but also perform well on a risk-adjusted basis.     

Managing foreign R&D laboratories in China

This paper focuses on the management of R&D units established by foreign companies in China, investigating R&D missions, site build-up, integration with the parent organization, and overall performance measurement. The research is based on 37 qualitative expert interviews with local R&D directors and managers conducted between 2001 and 2004, using a semi-structured research questionnaire, and semi-quantitative research done on 199 foreign R&D labs in China. Cultural influences on R&D management, location advantages, expatriate involvement, and organizational evolution of local laboratories are discussed. We find that foreign R&D laboratories in China are not only important vehicles for local market development but also increasingly important sources of locally developed technology.