Explaining deviations from NAV in UK property companies: rationality and sentimentality

One of the most vexing issues for analysts and managers of property companies across Europe has been the existence and persistence of deviations of Net Asset Values of property companies from their market capitalisation. The issue has clear links to similar discounts and premiums in closed-end funds. The closed end fund puzzle is regarded as an important unsolved problem in financial economics undermining theories of market efficiency and the Law of One Price. Consequently, it has generated a huge body of research. Although it can be tempting to focus on the particular inefficiencies of real estate markets in attempting to explain deviations from NAV, the closed end fund discount puzzle indicates that divergences between underlying asset values and market capitalisation are not a ‘pure’ real estate phenomenon. When examining potential explanations, two recurring factors stand out in the closed end fund literature as often undermining the economic rationale for a discount – the existence of premiums and cross-sectional and periodic fluctuations in the level of discount/premium. These need to be borne in mind when considering potential explanations for real estate markets. There are two approaches to investigating the discount to net asset value in closed-end funds: the ‘rational’ approach and the ‘noise trader’ or ‘sentiment’ approach. The ‘rational’ approach hypothesizes the discount to net asset value as being the result of company specific factors relating to such factors as management quality, tax liability and the type of stocks held by the fund. Despite the intuitive appeal of the ‘rational’ approach to closed-end fund discounts the studies have not successfully explained the variance in closed-end fund discounts or why the discount to net asset value in closed-end funds varies so much over time. The variation over time in the average sector discount is not only a feature of closed-end funds but also property companies. This paper analyses changes in the deviations from NAV for UK property companies between 2000 and 2003. The paper present a new way to study the phenomenon ‘cleaning’ the gearing effect by introducing a new way of calculating the discount itself. We call it “ungeared discount”. It is calculated by assuming that a firm issues new equity to repurchase outstanding debt without any variation on asset side. In this way discount does not depend on an accounting effect and the analysis should better explain the effect of other independent variables.

Ensuring operational compliance and ethical responsibility in the regulation of ART: the HFEA, past, present, and future

Under the Public Bodies Bill 2010, the HFEA, cornerstone in the regulation of assisted reproduction technologies (ART) for the last twenty years, is due to be abolished. This implies that there is no longer a need for a dedicated regulator for ART and that the existing roles of the Authority as both operational compliance monitor, and instance of ethical evaluation, may be absorbed by existing healthcare regulators. This article presents a timely analysis of these disparate functions of the HFEA, charting reforms adopted in 2008 and assessing the impact of the current proposals. Taking assisted conception treatment as the focus activity, it will be shown that the last few years have seen a concentration on the HFEA as a technical regulator based upon the principles of Better Regulation, with little analysis of how the ethical responsibility of the Authority fits into this framework. The current proposal to abolish the HFEA continues to fail to address this crucial question. Notwithstanding the fact that the scope of the Authority's ethical role may be questioned, its abolition requires that the Government consider what alternatives exists - or need to be put in place - to provide both responsive operational regulation and a forum for ethical reflection and decision-making in an area which continues to pose regulatory challenges