Individual assets, market structure and the drivers of return

Much prior research on the structure and performance of UK real estate portfolios has relied on aggregated measures for sector and region. For these groupings to have validity, the performance of individual properties within each group should be similar. This paper analyses a sample of 1,200 properties using multiple discriminant analysis and cluster analysis techniques. It is shown that conventional property type and spatial classifications do not capture the variation in return behaviour at the individual building level. The major feature is heterogeneity - but there may be distinctions between growth and income properties and between single and multi-let properties that could help refine portfolio structures.

Individual assets, market structure and the drivers of return

Much UK research and market practice on portfolio strategy and performance benchmarking relies on a sector‐geography subdivision of properties. Prior tests of the appropriateness of such divisions have generally relied on aggregated or hypothetical return data. However, the results found in aggregate may not hold when individual buildings are considered. This paper makes use of a dataset of individual UK property returns. A series of multivariate exploratory statistical techniques are utilised to test whether the return behaviour of individual properties conforms to their a priori grouping. The results suggest strongly that neither standard sector nor regional classifications provide a clear demarcation of individual building performance. This has important implications for both portfolio strategy and performance measurement and benchmarking. However, there do appear to be size and yield effects that help explain return behaviour at the property level.

Firm size and competition: a comparison of the housebuilding industries in Australia, the UK and the USA

Housebuilding is frequently viewed as an industry full of small firms. However, large firms exist in many countries. Here, a comparative analysis is made of the housebuilding industries in Australia, Britain and the USA. Housebuilding output is found to be much higher in Australia and the USA than in Britain when measured on a per capita basis. At the same time, the degree of market concentration in Australia and the USA is relatively low but in Britain it is far greater, with a few firms having quite substantial market shares. Investigation of the size distribution of the top 100 or so firms ranked by output also shows that the decline in firm size from the largest downwards is more rapid in Britain than elsewhere. The exceptionalism of the British case is put down to two principal reasons. First, the close proximity of Britain’s regions enables housebuilders to diversify successfully across different markets. The gains from such diversification are best achieved by large firms, because they can gain scale benefits in any particular market segment. Second, land shortages induced by a restrictive planning system encourage firms to takeover each other as a quick and beneficial means of acquiring land. The institutional rules of planning also make it difficult for new entrants to come in at the bottom end of the size hierarchy. In this way, concentration grows and a handful of large producers emerge. These conditions do not hold in the other two countries, so their industries are less concentrated. Given the degree of rivalry between firms over land purchases and takeovers, it is difficult to envisage them behaving in a long-term collusive manner, so that competition in British housebuilding is probably not unduly compromised by the exceptional degree of firm concentration. Reforms to lower the restrictions, improve the slow responsiveness and reduce the uncertainties associated with British planning systems’ role in housing supply are likely to greatly improve the ability of new firms to enter housebuilding and all firms’ abilities to increase output in response to rising housing demand. Such reforms would also probably lower overall housebuilding firm concentration over time.

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.

Business life cycle and capital structure: evidence from Chinese manufacturing firms

This paper uses a panel data-fixed effect approach and data collected from Chinese public manufacturing firms between 1999 and 2011 to investigate the impacts of business life cycle stages on capital structure. We find that cash flow patterns capture more information on business life cycle stages than firm age and have a stronger impact on capital structure decision-making. We also find that the adjustment speed of capital structure varies significantly across life cycle stages and that non-sequential transitions over life cycle stages play an important role in the determination of capital structure. Our study indicates that it is important for policy-makers to ensure that products and financial markets are well-balanced.

A new look at stratospheric sudden warmings. Part III. Polar vortex evolution and vertical structure

The evolution of the Arctic polar vortex during observed major mid-winter stratospheric sudden warmings (SSWs) is investigated for the period 1957-2002, using European Centre for Medium-Range Weather Forecasts (ECMWF) ERA-40 Ertel’s potential vorticity (PV) and temperature fields. Time-lag composites of vertically weighted PV, calculated relative to the SSW onset time, are derived for both vortex displacement SSWs and vortex splitting SSWs, by averaging over the 15 recorded displacement and 13 splitting events. The evolving vertical structure of the polar vortex during a typical SSW of each type is clearly illustrated by plotting an isosurface of the composite PV field, and is shown to be very close to that observed during representative individual events. Results are verified by comparison with an elliptical diagnostic vortex moment technique. For both types of SSW, little variation is found between individual events in the orientation of the developing vortex relative to the underlying topography, i.e. the location of the vortex during SSWs of each type is largely fixed in relation to the Earth’s surface. During each type of SSW, the vortex is found to have a distinctive vertical structure. Vortex splitting events are typically barotropic, with the vortex split occurring near-simultaneously over a large altitude range (20-40 km). In the majority of cases, of the two daughter vortices formed, it is the ‘Siberian’ vortex that dominates over its ‘Canadian’ counterpart. In contrast, displacement events are characterized by a very clear baroclinic structure; the vortex tilts significantly westward with height, so that the top and bottom of the vortex are separated by nearly 180◦ longitude before the upper vortex is sheared away and destroyed.

Microwave spectrum of CHD2CN and CHD2NC, and the harmonic force field and rz structure of methyl cyanide and isocyanide

The microwave spectra of CHD2CN and CHD2NC have been measured from 18 to 40 GHz; about 20 type A and 30 type C transitions have been observed for each molecule. These have been fitted to a Hamiltonian using 3 rotational constants, and 5 quartic and 4 sextic distortion constants, in the IrS reduction of Watson [in “Vibrational spectra and structure” Vol. 6 (1977)]; the standard error of the fit is 26 kHz. For methyl cyanide the 5 quartic distortion constants have been used to further refine the recent harmonic force field of Duncan et al. [J. Mol. Spectrosc. 69, 123 (1978)], but the changes are small. Finally, for both molecules, the harmonic force field has been used to determine zero point average moments of inertia Iz from the ground state rotational constants for many isotopic species, and these have been used to determine an rz structure. The results are compared with rs structure calculations.

The harmonic force field and rz structure of HNCO

The presently available microwave, millimeter wave, and far-infrared data of five isotopic species of isocyanic acid, namely, HNCO, H15NCO, HN13CO, HNC18O, and DNCO, have been used to obtain improved values of the ground-state rotational constants, the five quartic distortion constants, and some higher-order distortion constants in the Ir S reduced Hamiltonian of Watson. The appropriate planarity relation among the quartic centrifugal distortion constants has been imposed in the fitting procedure. The general harmonic force field of isocyanic acid has been determined using all existing data, and assuming a trans bent equilibrium geometry of the molecule with an NCO angle of 170°. Finally an rz structure has been obtained using the Az, Bz, and Cz rotational constants of five isotopic species. The bending of the NCO chain is found to be 8° in the trans configuration.

Modelling the lava dome extruded at Soufrière Hills Volcano, Montserrat, August 2005–May 2006. Part I: Dome shape and internal structure

Lava domes comprise core, carapace, and clastic talus components. They can grow endogenously by inflation of a core and/or exogenously with the extrusion of shear bounded lobes and whaleback lobes at the surface. Internal structure is paramount in determining the extent to which lava dome growth evolves stably, or conversely the propensity for collapse. The more core lava that exists within a dome, in both relative and absolute terms, the more explosive energy is available, both for large pyroclastic flows following collapse and in particular for lateral blast events following very rapid removal of lateral support to the dome. Knowledge of the location of the core lava within the dome is also relevant for hazard assessment purposes. A spreading toe, or lobe of core lava, over a talus substrate may be both relatively unstable and likely to accelerate to more violent activity during the early phases of a retrogressive collapse. Soufrière Hills Volcano, Montserrat has been erupting since 1995 and has produced numerous lava domes that have undergone repeated collapse events. We consider one continuous dome growth period, from August 2005 to May 2006 that resulted in a dome collapse event on 20th May 2006. The collapse event lasted 3 h, removing the whole dome plus dome remnants from a previous growth period in an unusually violent and rapid collapse event. We use an axisymmetrical computational Finite Element Method model for the growth and evolution of a lava dome. Our model comprises evolving core, carapace and talus components based on axisymmetrical endogenous dome growth, which permits us to model the interface between talus and core. Despite explicitly only modelling axisymmetrical endogenous dome growth our core–talus model simulates many of the observed growth characteristics of the 2005–2006 SHV lava dome well. Further, it is possible for our simulations to replicate large-scale exogenous characteristics when a considerable volume of talus has accumulated around the lower flanks of the dome. Model results suggest that dome core can override talus within a growing dome, potentially generating a region of significant weakness and a potential locus for collapse initiation.