The impact of 9/11 on US REIT returns: fundamental or financial?

Following the attack on the World Trade Center on 9/11 volatility of daily returns of the US stock market rose sharply. This increase in volatility may reflect fundamental changes in the economic determinants of prices such as expected earnings, interest rates, real growth and inflation. Alternatively, the increase in volatility may simply reflect the effects of increased uncertainty in the financial markets. This study therefore sets out to determine if the effects of the attack on the World Trade Center on 9/11 had a fundamental or purely financial impact on US real estate returns. In order to do this we compare pre- and post-9/11 crisis returns for a number of US REIT indexes using an approach suggested by French and Roll (1986), as extended by Tuluca et al (2003). In general we find no evidence that the effects of 9/11 had a fundamental effect on REIT returns. In other words, we find that the effect of the attack on the World Trade Center on 9/11 had only a financial effect on REIT returns and therefore was transitory.

The effect of asymmetries on stock index return value-at-risk estimates

It is widely accepted that equity return volatility increases more following negative shocks rather than positive shocks. However, much of value-at-risk (VaR) analysis relies on the assumption that returns are normally distributed (a symmetric distribution). This article considers the effect of asymmetries on the evaluation and accuracy of VaR by comparing estimates based on various models.

The elasticity of demand is about occupancy, not prices: building European demand curves based on occupancy elasticity

The peak congestion of the European grid may create significant impacts on system costs because of the need for higher marginal cost generation, higher cost system balancing and increasing grid reinforcement investment. The use of time of use rates, incentives, real time pricing and other programmes, usually defined as Demand Side Management (DSM), could bring about significant reductions in prices, limit carbon emissions from dirty power plants, and improve the integration of renewable sources of energy. Unlike previous studies on elasticity of residential electricity demand under flat tariffs, the aim of this study is not to investigate the known relatively inelastic relationship between demand and prices. Rather, the aim is to assess how occupancy levels vary in different European countries. This reflects the reality of demand loads, which are predominantly determined by the timing of human activities (e.g. travelling to work, taking children to school) rather than prices. To this end, two types of occupancy elasticity are estimated: baseline occupancy elasticity and peak occupancy elasticity. These represent the intrinsic elasticity associated with human activities of single residential end-users in 15 European countries. This study makes use of occupancy time-series data from the Harmonised European Time Use Survey database to build European occupancy curves; identify peak occupancy periods; draw time use demand curves for video and TV watching activity; and estimate national occupancy elasticity levels of single-occupant households. Findings on occupancy elasticities provide an indication of possible DSM strategies based on occupancy levels and not prices.

The impact of news on measures of undiversifiable risk: evidence from the UK stock market

Using UK equity index data, this paper considers the impact of news on time varying measures of beta, the usual measure of undiversifiable risk. The empirical model implies that beta depends on news about the market and news about the sector. The asymmetric response of beta to news about the market is consistent across all sectors considered. Recent research is divided as to whether abnormalities in equity returns arise from changes in expected returns in an efficient market or over-reactions to new information. The evidence suggests that such abnormalities may be due to changes in expected returns caused by time-variation and asymmetry in beta.

Can we explain the dynamics of the UK FTSE 100 stock and stock index futures markets?

If stock and stock index futures markets are functioning properly price movements in these markets should best be described by a first order vector error correction model with the error correction term being the price differential between the two markets (the basis). Recent evidence suggests that there are more dynamics present than should be in effectively functioning markets. Using self-exciting threshold autoregressive (SETAR) models, this study analyses whether such dynamics can be related to different regimes within which the basis can fluctuate in a predictable manner without triggering arbitrage. These findings reveal that the basis shows strong evidence of autoregressive behaviour when its value is between the two thresholds but that the extra dynamics disappear once the basis moves above the upper threshold and their persistence is reduced, although not eradicated, once the basis moves below the lower threshold. This suggests that once nonlinearity associated with transactions costs is accounted for, stock and stock index futures markets function more effectively than is suggested by linear models of the pricing relationship.

The case of negative day-ahead electricity prices

In recent years, Germany has significantly increased its share of electricity produced from renewable sources, which is mainly due to the Renewable Energy Act (EEG). The EEG substantially impacts the dynamics of intra-day electricity prices by increasing the likelihood of negative prices. In this paper, we present a non-Gaussian process to model German intra-day electricity prices and propose an estimation procedure for this model. Most importantly, our model is able to generate extreme positive and negative spikes. A simulation study demonstrates the ability of our model to capture the characteristics of the data.

Cheap dates and the delusion of gratification: are votes sold or traded in the EU Council of Ministers?

Each year, small Member States receive a disproportionate share of the European Union's (EU's) budget. A prominent explanation for this is that Council decision-making involves a healthy dose of vote selling, whereby large Member States offer small states generous fiscal transfers in exchange for influence over policy. But nobody has investigated whether net budget contributors actually get anything for their money. In this paper I identify the vote selling model's observable implications and find virtually no evidence consistent with Council cash-for-votes exchanges. I also show that a compromise model – the leading model of EU decision-making to date – modified to incorporate vote selling does not outperform a standard one that assumes votes are traded rather than sold. Taken together, the results suggest that Council decision-making operates with little or no vote selling, and that regardless of whatever they think they might be buying, net budget contributors get little or nothing in return for their money. These findings call for further investigation into how Member States approach the issue of fiscal transfers, and into the factors other than formal voting weight that affect the power of actors engaged in EU decision-making.

A data framework for measuring the energy consumption of the non-domestic building stock

The transition to a low-carbon economy urgently demands better information on the drivers of energy consumption. UK government policy has prioritized energy efficiency in the built stock as a means of carbon reduction, but the sector is historically information poor, particularly the non-domestic building stock. This paper presents the results of a pilot study that investigated whether and how property and energy consumption data might be combined for non-domestic energy analysis. These data were combined in a ‘Non-Domestic Energy Efficiency Database’ to describe the location and physical attributes of each property and its energy consumption. The aim was to support the generation of a range of energy-efficiency statistics for the industrial, commercial and institutional sectors of the non-domestic building stock, and to provide robust evidence for national energy-efficiency and carbon-reduction policy development and monitoring. The work has brought together non-domestic energy data, property data and mapping in a ‘data framework’ for the first time. The results show what is possible when these data are integrated and the associated difficulties. A data framework offers the potential to inform energy-efficiency policy formation and to support its monitoring at a level of detail not previously possible.

The underpricing of IPOs on the stock exchange of Mauritius

This paper investigates the underpricing of IPOs on the Stock Exchange of Mauritius (SEM). Taking into account the whole population of firms which went public since the inception of the SEM until 2010, the results show an average degree of underpricing within the range 10 to 20%. Using a regression approach, we demonstrate that the aftermarket risk level and auditor's reputation both have a significant positive impact on initial returns. We propose the use of the Z-score as a composite measure of a firm's ex ante financial strength, and find that it has a significant negative effect on the degree of short-run underpricing.