Small firm mutual funds: Additional evidence on the small firm effect

Returns generated with small firm mutual fund data are used to examine the extent to which identification of a small firm effect is due to the difficulty in measuring the direct and indirect transaction costs involved in investing in the common shares of small capitalization stocks. Little if any evidence of the excess risk-adjusted returns is obtained for either of the period 1978–1983, when the small firm effect was observed, or the period 1984–1989, when it was not. The small firm effect may therefore be attributed to (1) higher direct transaction costs including bid-ask spread and broker fees and (2) higher indirect transaction costs including portfolio management expenses and market impact costs.The authors thank an anonymous referee for helpful comments on an earlier version of this paper, and Brett Salazar for valuable assistance in data collection. Errors remain our own.     

Beauty in the Eye of the Home‐Owner: Aesthetic Zoning and Residential Property Values

This article empirically confirms one core motivation for architectural zoning: Shape homogeneity among neighboring homes increases the value of residential buildings. Drawing on large‐scale shape and transaction data, this study first develops a data‐driven measure of architectural similarity, condensing three‐dimensional shapes to univariate shape distributions. These algorithm‐based similarity estimates are good predictors of human perceptions of shape similarity and are linked to property attributes and transaction prices. For the city of Rotterdam, a price premium of approximately 3.5% is estimated for row houses within very homogeneous ensembles over buildings facing heterogeneous neighbors.     

The Success of American Communes

This study analyzes the effect of the structure of communes on their success, using the data of 281 communes started in America from 1683 to 1937. Factors increasing the likelihood of success include (i) being a pietist religious sect, (ii) inducing commitment as measured by an index of several underlying variables, (iii) allowing some private property, and (iv) with some qualification, having anarchic governance. These results support the prevailing commitment hypothesis. They additionally indicate that communes can increase their likelihood of success by making some concessions to egoistic concerns.     

Texas treasury notes and market manipulation, 1837-1842

This paper examines the course of the value of the paper money issued by the Republic of Texas in New Orleans, from 1837 to 1842, using a newly-constructed weekly time series of quotations, and focusing on the possibility of market manipulation. Specifically, during 1841, misleading information concerning a possible foreign loan reached New Orleans three different times. The first time, the information substantially raised the value of Texas Treasury Notes. The second time, the information raised the value, but to a lesser extent. The third time, the information had no impact.     

Following the Crowd—Does Crowdfunding Affect Venture Capitalists’ Selection of Entrepreneurial Ventures?

Given the increasing popularity of crowdfunding as a new means to finance entrepreneurial ventures, we assess whether and how crowdfunding campaign‐specific signals that affect campaign success influence venture capitalists’ selection decisions in ventures’ follow‐up funding process. Our study relies on cross‐referencing a proprietary data set of 56,000 crowdfunding campaigns that ran on Kickstarter between 2009 and 2016 with 100,000 investments in the same period from the Crunchbase data set. Drawing on signaling theory and the microfinance literature, our empirical findings reveal that a successful crowdfunding campaign leads to a higher likelihood to receive follow‐up venture capital (VC) financing, and that there exists an inverted U‐shaped relationship between the funding‐ratio and the probability to receive VC funding. Further, we find statistical evidence that an endorsement by the platform provider has a likewise positive impact on the receipt of VC. Contrary to our expectations, word‐of‐mouth volume seems to be a negligible factor when it comes to follow‐up VC financing. Our results support the view that crowdfunding signals are factored into the VC’s funding decision in order to evaluate the potential of entrepreneurial ventures.     

Rent control with rationing by search costs: A note

This note derives the long-run implications of rent controls when rent-controlled apartments are implicitly rationed to tenants who are more efficient in searching for apartments in the controlled sector. Rent controls are shown to involve transfers that essentially are from some to other tenants, as well as dead-weight losses due to higher search costs that are borne by tenants. Key to this analysis is the condition that, at the margin, rent plus the higher cost of search for a rent-controlled apartment must equal rent in the noncontrolled sector.     

The pricing of callable preferred stock

In this study, the authors use both the Black/Scholes European option model and the Barone-Adesi/Whaley American option model to estimate call option values implicit in seasoned callable preferred stock issues. Consistent with the finding that call features increase bond yields, a significant relationship is found between estimated option values and discounts of these securities’ market prices from their estimated income values. However, the size of the discount is only a fraction of what would be predicted by the American option model. Specifically, the market does not appear to take the “early exercise premium” into account. Furthermore, this discount seems to be isolated to in-the-money call features that have evolved to their final call price. Thus, incorporation of a call feature into a security’s indentures, with a deferment period and an initial premium call price, appears to represent a pure gain for the issuing corporation.     

Monocentric Cyberspace: The Primary Market for Internet Domain Names

Cyberspace is no different from traditional cities, at least in economic terms. Urban economics governs the creation of new space on the Internet and explains location choices and price gradients in virtual space. This study explores registration dynamics in the largest primary market for virtual space: Internet domain names. After developing a framework for domain registrations, it empirically tests whether domain registrations are constrained by the depletion of unregistered high quality domain names. Estimations based on registrations of COM domain names suggest that the number of domains expands substantially slower than the growth in overall demand for domain space. Supplying alternative domain extensions can relax the shortage in domains in the short term.     

2018 Real Estate Finance & Investment Symposium

The Journal of Real Estate Finance and Economics - In October 2018, the Real Estate Finance & Investment Symposium, sponsored and organized by the University of Cambridge, the University of...