The impact of real estate on the mixed-asset portfolio in periods of financial stress

The case for holding real estate in the mixed-asset portfolio is typically made on its stabilising effect as a result of its diversification benefits. However, portfolio diversification often fails when it is most needed, i.e. during periods of financial stress. In these periods, the variability of returns for most asset classes increases thus reducing the stabilising effect of a diversified portfolio. This paper applies the approach of Chow et al (1999) to the US domestic mixed-asset portfolio to establish whether real estate, represented by REITs, is especially useful in times of financial stress. To this end monthly returns data on five assets classes: large cap stocks, small cap stocks, long dated government bonds, cash (T-Bills) and real estate (REITs) are evaluated over the period January 1972 to December 2001. The results indicate that the inclusion of REITs in the mixed-asset portfolio can lead to increases or decreases in returns depending on the asset class replaced and whether the period is one of calm or stress. However, the inclusion of REITs invariably leads to reductions in portfolio risk that are greater than any loss in return, especially in periods of financial stress. In other words, REITs acts as a stabilising force on the mixed-asset portfolio when it is most needed, i.e. in periods of financial stress.

Monetary integration and real estate markets: an investigation of the impact of the introduction of a single currency on real estate performance

This paper assesses the impact of the monetary integration on different types of stock returns in Europe. In order to isolate European factors, the impact of global equity integration and small cap factors are investigated. European countries are sub-divided according to the process of monetary convergence. Analysis shows that national equity indices are strongly influenced by global market movements, with a European stock factor providing additional explanatory power. The global and European factors explain small cap and real estate stocks much less well –suggesting an increased importance of ‘local’ drivers. For real estate, there are notable differences between core and non-core countries. Core European countries exhibit convergence – a convergence to a European rather than a global factor. The non-core countries do not seem to exhibit common trends or movements. For the non-core countries, monetary integration has been associated with increased dispersion of returns, lower correlation and lower explanatory power of a European factor. It is concluded that this may be explained by divergence in underlying macro-economic drivers between core and non-core countries in the post-Euro period.

Islamic mutual funds' financial performance and international investment style: evidence from 20 countries

We pursue the first large-scale investigation of a strongly growing mutual fund type: Islamic funds. Based on an unexplored, survivorship bias-adjusted data set, we analyse the financial performance and investment style of 265 Islamic equity funds from 20 countries. As Islamic funds often have diverse investment regions, we develop a (conditional) three-level Carhart model to simultaneously control for exposure to different national, regional and global equity markets and investment styles. Consistent with recent evidence for conventional funds, we find Islamic funds to display superior learning in more developed Islamic financial markets. While Islamic funds from these markets are competitive to international equity benchmarks, funds from especially Western nations with less Islamic assets tend to significantly underperform. Islamic funds’ investment style is somewhat tilted towards growth stocks. Funds from predominantly Muslim economies also show a clear small cap preference. These results are consistent over time and robust to time varying market exposures and capital market restrictions.

The spacing of orographic rainbands triggered by small-scale topography

A combination of idealized numerical simulations and analytical theory is used to investigate the spacing between convective orographic rainbands over the Coastal Range of western Oregon. The simulations, which are idealized from an observed banded precipitation event over the Coastal Range, indicate that the atmospheric response to conditionally unstable flow over the mountain ridge depends strongly on the subridge-scale topographic forcing on the windward side of the ridge. When this small-scale terrain contains only a single scale (l) of terrain variability, the band spacing is identical to l, but when a spectrum of terrain scales are simultaneously present, the band spacing ranges between 5 and 10 km, a value that is consistent with observations. Based on the simulations, an inviscid linear model is developed to provide a physical basis for understanding the scale selection of the rainbands. This analytical model, which captures the transition from lee waves upstream of the orographic cloud to moist convection within it, reveals that the spacing of orographic rainbands depends on both the projection of lee-wave energy onto the unstable cap cloud and the growth rate of unstable perturbations within the cloud. The linear model is used in tandem with numerical simulations to determine the sensitivity of the band spacing to a number of environmental and terrain-related parameters.

New direct payments scheme: targeting and redistribution in the future CAP

The Commission has proposed that a revised version of the present regime of direct payments should be rolled forward into the post-2013 CAP. There would be a limited redistribution of funds between Member States. Thirty per cent of the budget would be allocated to a new greening component, which would be problematic in the WTO. Non-active farmers would not qualify for aid; and payments would be capped. Special schemes would be introduced for small farmers, for young new entrants, and for disadvantaged regions.

Automated identification and tracking of polar-cap plasma patches at solar minimum

A method of automatically identifying and tracking polar-cap plasma patches, utilising data inversion and feature-tracking methods, is presented. A well-established and widely used 4-D ionospheric imaging algorithm, the Multi-Instrument Data Assimilation System (MIDAS), inverts slant total electron content (TEC) data from ground-based Global Navigation Satellite System (GNSS) receivers to produce images of the free electron distribution in the polar-cap ionosphere. These are integrated to form vertical TEC maps. A flexible feature-tracking algorithm, TRACK, previously used extensively in meteorological storm-tracking studies is used to identify and track maxima in the resulting 2-D data fields. Various criteria are used to discriminate between genuine patches and "false-positive" maxima such as the continuously moving day-side maximum, which results from the Earth's rotation rather than plasma motion. Results for a 12-month period at solar minimum, when extensive validation data are available, are presented. The method identifies 71 separate structures consistent with patch motion during this time. The limitations of solar minimum and the consequent small number of patches make climatological inferences difficult, but the feasibility of the method for patches larger than approximately 500 km in scale is demonstrated and a larger study incorporating other parts of the solar cycle is warranted. Possible further optimisation of discrimination criteria, particularly regarding the definition of a patch in terms of its plasma concentration enhancement over the surrounding background, may improve results.