An analysis of commercial real estate returns: an anatomy of smoothing in asset and index returns

In this article, we investigate the commonly used autoregressive filter method of adjusting appraisal-based real estate returns to correct for the perceived biases induced in the appraisal process. Many articles have been written on appraisal smoothing but remarkably few have considered the relationship between smoothing at the individual property level and the amount of persistence in the aggregate appraisal-based index. To investigate this issue we analyze a large sample of appraisal data at the individual property level from the Investment Property Databank. We find that commonly used unsmoothing estimates at the index level overstate the extent of smoothing that takes place at the individual property level. There is also strong support for an ARFIMA representation of appraisal returns at the index level and an ARMA model at the individual property level.

Contributing understanding of mitigation options for phosphorus and sediment to a review of the efficacy of contemporary agricultural stewardship measures

Experiences from the Mitigation Options for Phosphorus and Sediment (MOPS) projects, which aim to determine the effectiveness of measures to reduce pollutant loading from agricultural land to surface waters, have been used to contribute to the findings of a recent paper (Kay et al., 2009, Agricultural Systems, 99, 67–75), which reviewed the efficacy of contemporary agricultural stewardship measures for ameliorating the water pollution problems of key concern to the UK water industry. MOPS1 is a recently completed 3-year research project on three different soil types in the UK, which focused on mitigation options for winter cereals. MOPS1 demonstrated that tramlines can be the major pathway for sediment and nutrient transfer from arable hillslopes, and that although minimum tillage, crop residue incorporation, contour cultivation, and beetle banks also have potential to be cost-effective mitigation options, tramline management is the one of the most promising treatments for mitigating diffuse pollution losses, as it was able to reduce sediment and nutrient losses by 72–99% in four out of five site years trialled. Using information from the MOPS projects, this paper builds on the findings of Kay et al. to provide an updated picture of the evidence available and the immediate needs for research in this area.

ASSET: moving forward through feedback

Providing high quality and timely feedback to students is often a challenge for many staff in higher education as it can be both time-consuming and frustratingly repetitive. From the student perspective, feedback may sometimes be considered unhelpful, confusing and inconsistent and may not always be provided within a timeframe that is considered to be ‘useful’. The ASSET project, based at the University of Reading, addresses many of these inherent challenges by encouraging the provision of feedback that supports learning, i.e. feedback that contains elements of ‘feed-forward’, is of a high quality and is delivered in a timely manner. In particular, the project exploits the pedagogic benefits of video/audio media within a Web 2.0 context to provide a new, interactive resource, ‘ASSET’, to enhance the feedback experience for both students and staff. A preliminary analysis of both our quantitative and qualitative pedagogic data demonstrate that the ASSET project has instigated change in the ways in which both staff and students think about, deliver, and engage with feedback. For example, data from our online questionnaires and focus groups with staff and students indicate a positive response to the use of video as a medium for delivering feedback to students. In particular, the academic staff engaged in piloting the ASSET resource indicated that i) using video has made them think more, and in some cases differently, about the ways in which they deliver feedback to students and ii) they now see video as an effective means of making feedback more useful and engaging for students. Moreover, the majority of academic staff involved in the project have said they will continue to use video feedback. From the student perspective, 60% of those students whose lecturers used ASSET to provide video feedback said that “receiving video feedback encouraged me to take more notice of the feedback compared with normal methods” and 80% would like their lecturer to continue to use video as a method for providing feedback. An important aim of the project was for it to complement existing University-wide initiatives on feedback and for ASSET to become a ‘model’ resource for staff and students wishing to explore video as a medium for feedback provision. An institutional approach was therefore adopted and key members of Senior Management, academics, T&L support staff, IT support and Student Representatives were embedded within the project from the start. As with all initiatives of this kind, a major issue is the future sustainability of the ASSET resource and to have had both ‘top-down’ and ‘bottom-up’ support for the project has been extremely beneficial. In association with the project team the University is currently exploring the creation of an open-source, two-tiered video supply solution and a ‘framework’ (that other HEIs can adopt and/or adapt) to support staff in using video for feedback provision. In this way students and staff will have new opportunities to explore video and to exploit the benefits of this medium for supporting learning.

The basis of valuations for secured commercial property lending in the UK

In the context of the financial crash and the commercial property market downturn, this paper examines the basis of valuation used in the UK commercial property lending process. Post-crisis there is discussion of countercyclical measures including the monitoring of asset prices; however there is no consideration of a different approach to property valuation. This paper questions this omission, given the role that valuations play in the bank regulatory process. The different bases of valuation available to lenders within International Valuation Standards are identified as Market Value (MV), Mortgage Lending Value (MLV) and Investment Value (IV), with MV being the most used in the UK. Using the different bases in the period before the financial crisis, the UK property market is modelled at a national office, retail and industrial/warehouse sector level to determine the performance of each alternative valuation basis within the context of counter-cyclical pressures on lending. Both MLV and IV would have produced lower valuations and could have provided lenders with tools for more informed and prudent lending. The paper concludes by recognising some of the practical issues involved in adopting the different bases for the bank lending role but recommends a change to IV.

The dynamics of asset prices and transaction activity in illiquid markets: the case of private commercial real estate

This paper investigates the relationship between capital flows, turnover and returns for the UK private real estate market. We examine a number of possible implication of capital flows and turnover on capital returns testing for evidence of a price pressure effect, ‘return chasing’ behaviour and information revelation. The main tool of analysis is a panel vector autoregressive (VAR) regression model in which institutional capital flows, turnover and returns are specified as endogenous variables in a two equation system in which we also control for macro-economic variables. Data on flows, turnover and returns are obtained for the 10 market segments covering the main UK commercial real estate sectors. Our results do not support the widely-held belief among practitioners that capital flows have a ‘price pressure’ effect. Although there is some evidence of return chasing behaviour, the short timescales involved suggest this finding may be due to delayed recording of flows relative to returns given the difficulties of market entry. We find a significant positive relationship between lagged turnover and contemporaneous capital returns, suggesting that asset turnover provides pricing information.

The use of cursor measures for motion-impaired computer users

“Point and click” interactions remain one of the key features of graphical user interfaces (GUIs). People with motion-impairments, however, can often have difficulty with accurate control of standard pointing devices. This paper discusses work that aims to reveal the nature of these difficulties through analyses that consider the cursor’s path of movement. A range of cursor measures was applied, and a number of them were found to be significant in capturing the differences between able-bodied users and motion-impaired users, as well as the differences between a haptic force feedback condition and a control condition. The cursor measures found in the literature, however, do not make up a comprehensive list, but provide a starting point for analysing cursor movements more completely. Six new cursor characteristics for motion-impaired users are introduced to capture aspects of cursor movement different from those already proposed.

Using cursor measures to determine appropriate computer input assistance for motion-impaired users

People with motion-impairments can often have difficulty with accurate control of standard pointing devices for computer input. The nature of the difficulties may vary, so to be most effective, methods of assisting cursor control must be suited to each user's needs. The work presented here involves a study of cursor trajectories as a means of assessing the requirements of motion-impaired computer users. A new cursor characteristic is proposed that attempts to capture difficulties with moving the cursor in a smooth trajectory. A study was conducted to see if haptic tunnels could improve performance in "point and click" tasks. Results indicate that the tunnels reduced times to target for those users identified by the new characteristic as having the most difficulty moving in a smooth trajectory. This suggests that cursor characteristics have potential applications in performing assessments of a user's cursor control capabilities which can then be used to determine appropriate methods of assistance.

Extreme value distribution for singular measures

In this paper we perform an analytical and numerical study of Extreme Value distributions in discrete dynamical systems that have a singular measure. Using the block maxima approach described in Faranda et al. [2011] we show that, numerically, the Extreme Value distribution for these maps can be associated to the Generalised Extreme Value family where the parameters scale with the information dimension. The numerical analysis are performed on a few low dimensional maps. For the middle third Cantor set and the Sierpinskij triangle obtained using Iterated Function Systems, experimental parameters show a very good agreement with the theoretical values. For strange attractors like Lozi and H\`enon maps a slower convergence to the Generalised Extreme Value distribution is observed. Even in presence of large statistics the observed convergence is slower if compared with the maps which have an absolute continuous invariant measure. Nevertheless and within the uncertainty computed range, the results are in good agreement with the theoretical estimates.

Asset allocation, cross-class correlation and the structure of property returns

Practical applications of portfolio optimisation tend to proceed on a “top down” basis where funds are allocated first at asset class level (between, say, bonds, cash, equities and real estate) and then, progressively, at sub-class level (within property to sectors, office, retail, industrial for example). While there are organisational benefits from such an approach, it can potentially lead to sub-optimal allocations when compared to a “global” or “side-by-side” optimisation. This will occur where there are correlations between sub-classes across the asset divide that are masked in aggregation – between, for instance, City offices and the performance of financial services stocks. This paper explores such sub-class linkages using UK monthly stock and property data. Exploratory analysis using clustering procedures and factor analysis suggests that property performance and equity performance are distinctive: there is little persuasive evidence of contemporaneous or lagged sub-class linkages. Formal tests of the equivalence of optimised portfolios using top-down and global approaches failed to demonstrate significant differences, whether or not allocations were constrained. While the results may be a function of measurement of market returns, it is those returns that are used to assess fund performance. Accordingly, the treatment of real estate as a distinct asset class with diversification potential seems justified.

Is there a place for property in the multi-asset portfolio?

The case for property has typically rested on the application of modern portfolio theory (MPT), in that property has been shown to offer increased diversification benefits within a multi asset portfolio without hurting portfolio returns especially for lower risk portfolios. However this view is based upon the use of historic, usually appraisal based, data for property. Recent research suggests strongly that such data significantly underestimates the risk characteristics of property, because appraisals explicitly or implicitly smooth out much of the real volatility in property returns. This paper examines the portfolio diversification effects of including property in a multi-asset portfolio, using UK appraisal based (smoothed) data and several derived de-smoothed series. Having considered the effects of de-smoothing, we then consider the inclusion of a further low risk asset (cash) in order to investigate further whether property's place in a low risk portfolio is maintained. The conclusions of this study are that the previous supposed benefits of including property have been overstated. Although property may still have a place in a 'balanced' institutional portfolio, the case for property needs to be reassessed and not be based simplistically on the application of MPT.

Measures of observation impact in non-Gaussian data assimilation

ABSTRACT Non-Gaussian/non-linear data assimilation is becoming an increasingly important area of research in the Geosciences as the resolution and non-linearity of models are increased and more and more non-linear observation operators are being used. In this study, we look at the effect of relaxing the assumption of a Gaussian prior on the impact of observations within the data assimilation system. Three different measures of observation impact are studied: the sensitivity of the posterior mean to the observations, mutual information and relative entropy. The sensitivity of the posterior mean is derived analytically when the prior is modelled by a simplified Gaussian mixture and the observation errors are Gaussian. It is found that the sensitivity is a strong function of the value of the observation and proportional to the posterior variance. Similarly, relative entropy is found to be a strong function of the value of the observation. However, the errors in estimating these two measures using a Gaussian approximation to the prior can differ significantly. This hampers conclusions about the effect of the non-Gaussian prior on observation impact. Mutual information does not depend on the value of the observation and is seen to be close to its Gaussian approximation. These findings are illustrated with the particle filter applied to the Lorenz ’63 system. This article is concluded with a discussion of the appropriateness of these measures of observation impact for different situations.