Commercial real estate and equity market bubbles: are they contagious to REITs?

This paper uses a regime-switching approach to determine whether prices in the US stock, direct real estate and indirect real estate markets are driven by the presence of speculative bubbles. The results show significant evidence of the existence of periodically partially collapsing speculative bubbles in all three markets. A multivariate bubble model is then developed and implemented to evaluate whether the stock and real estate bubbles spill over into REITs. The underlying stock market bubble is found to be a stronger influence on the securitised real estate market bubble than that of the property market. Furthermore, the findings suggest a transmission of speculative bubbles from the direct real estate to the stock market, although this link is not present for the returns themselves.

Taylor v Caldwell (1863)

A Landmark Case is one which stands out from other less remarkable cases. Landmark status is generally accorded because the case marks the beginning or the end of a course of legal development. Taylor v Caldwell is regarded as a landmark case because it marks the beginning of a legal development: the introduction of the doctrine of frustration into English contract law. This chapter explores the legal and historical background to the case to ascertain if it is a genuine landmark. A closer scrutiny reveals that while the legal significance of the case is exaggerated, the historical significance of the cases reveals an unknown irony: the case is a suitable landmark to the frustration of human endeavours. While the existence of the Surrey Music Hall was brief, it brought insanity, imprisonment, bankruptcy and death to its creators.

Testing for bubbles in indirect property price cycles

Speculative bubbles are generated when investors include the expectation of the future price in their information set. Under these conditions, the actual market price of the security, that is set according to demand and supply, will be a function of the future price and vice versa. In the presence of speculative bubbles, positive expected bubble returns will lead to increased demand and will thus force prices to diverge from their fundamental value. This paper investigates whether the prices of UK equity-traded property stocks over the past 15 years contain evidence of a speculative bubble. The analysis draws upon the methodologies adopted in various studies examining price bubbles in the general stock market. Fundamental values are generated using two models: the dividend discount and the Gordon growth. Variance bounds tests are then applied to test for bubbles in the UK property asset prices. Finally, cointegration analysis is conducted to provide further evidence on the presence of bubbles. Evidence of the existence of bubbles is found, although these appear to be transitory and concentrated in the mid-to-late 1990s.

Do real balance effects invalidate the Taylor principle in closed and open economies?

This paper examines the determinacy implications of forecast-based monetary policy rules that set the interest rate in response to expected future inflation in a Neo-Wicksellian model that incorporates real balance effects. We show that the presence of such effects in closed economies restricts the ability of the Taylor principle to prevent indeterminacy of the rational expectations equilibrium. The problem is exacerbated in open economies, particularly if the policy rule reacts to consumer-price, rather than domestic-price, inflation. However, determinacy can be restored in both closed and open economies with the addition of monetary policy inertia.

Speculative bubbles and the cross-sectional variation in stock returns

Evidence suggests that rational, periodically collapsing speculative bubbles may be pervasive in stock markets globally, but there is no research that considers them at the individual stock level. In this study we develop and test an empirical asset pricing model that allows for speculative bubbles to affect stock returns. We show that stocks incorporating larger bubbles yield higher returns. The bubble deviation, at the stock level as opposed to the industry or market level, is a priced source of risk that is separate from the standard market risk, size and value factors. We demonstrate that much of the common variation in stock returns that can be attributable to market risk is due to the co-movement of bubbles rather than being driven by fundamentals.

Booms and busts in commodity markets: bubbles or fundamentals?

This paper considers whether there were periodically collapsing rational speculative bubbles in commodity prices over a 40-year period from the late 1960s. We apply a switching regression approach to a broad range of commodities using two different measures of fundamental values—estimated from convenience yields and from a set of macroeconomic factors believed to affect commodity demand. We find reliable evidence for bubbles only among crude oil and feeder cattle, showing the popular belief that the extreme price movements observed in commodity markets were caused by pure speculation to be unsustainable

Uniform factorial decay estimate for the remainder of rough Taylor expansion

We establish an uniform factorial decay estimate for the Taylor approximation of solutions to controlled differential equations. Its proof requires a factorial decay estimate for controlled paths which is interesting in its own right.

The bubbles or the boiling pot? An ecosystemic approach to culture, environment and quality of life

For the diagnosis and prognosis of the problems of quality of life, a multidisciplinary ecosystemic approach encompasses four dimensions of being-in-the-world, as donors and recipients: intimate, interactive, social and biophysical. Social, cultural and environmental vulnerabilities are understood and dealt with, in different circumstances of space and time, as the conjugated effect of all dimensions of being-in-the-world, as they induce the events (deficits and assets), cope with consequences (desired or undesired) and contribute for change. Instead of fragmented and reduced representations of reality, diagnosis and prognosis of cultural, educational, environmental and health problems considers the connections (assets) and ruptures (deficits) between the different dimensions, providing a planning model to develop and evaluate research, teaching programmes, public policies and field projects. The methodology is participatory, experiential and reflexive; heuristic-hermeneutic processes unveil cultural and epistemic paradigms that orient subject-object relationships; giving people the opportunity to reflect on their own realities, engage in new experiences and find new ways to live better in a better world. The proposal is a creative model for thought and practice, providing many opportunities for discussion, debate and development of holistic projects integrating different scientific domains (social sciences, psychology, education, philosophy, etc.).

An improved finite element space for discontinuous pressures

We consider incompressible Stokes flow with an internal interface at which the pressure is discontinuous, as happens for example in problems involving surface tension. We assume that the mesh does not follow the interface, which makes classical interpolation spaces to yield suboptimal convergence rates (typically, the interpolation error in the L(2)(Omega)-norm is of order h(1/2)). We propose a modification of the P(1)-conforming space that accommodates discontinuities at the interface without introducing additional degrees of freedom or modifying the sparsity pattern of the linear system. The unknowns are the pressure values at the vertices of the mesh and the basis functions are computed locally at each element, so that the implementation of the proposed space into existing codes is straightforward. With this modification, numerical tests show that the interpolation order improves to O(h(3/2)). The new pressure space is implemented for the stable P(1)(+)/P(1) mini-element discretization, and for the stabilized equal-order P(1)/P(1) discretization. Assessment is carried out for Poiseuille flow with a forcing surface and for a static bubble. In all cases the proposed pressure space leads to improved convergence orders and to more accurate results than the standard P(1) space. In addition, two Navier-Stokes simulations with moving interfaces (Rayleigh-Taylor instability and merging bubbles) are reported to show that the proposed space is robust enough to carry out realistic simulations. (c) 2009 Elsevier B.V. All rights reserved.