Comovement in UK real estate sector returns

Engle et al. (1990) distinguish between 'heat waves' and 'meteor showers' in an analogy which tries to differentiate between particular effects, not transmitted among markets, and general effects, which tend to affect all the markets, although different markets can be affected to different degrees. This paper applies this approach to the study of the monthly returns of four real estate market sectors: Office, Retail, Industrial and Retail Warehouses in the UK over the period 1979:2 to 1997:12. A VAR methodology used with the aim of detecting the causal relations and dynamic interactions among sector returns, as well as the transmission mechanisms of their information flows. The results obtained permit us to conclude that there is a good deal of integration between the monthly return time series for all the sectors. Therefore, diversification across real estate market sectors does not allow for the reduction of risk without sacrificing expected returns.

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.

The future returns for property required by UK pension funds

In the 1970s Real Estate represented over 17% of the average pension funds total assets. Today such funds hold less than 4%, a figure not seen since the 1960s. This reduction in Real Estate holdings is mainly attributable to the relatively poor performance of Real Estate against other asset classes since the 1980s. Whether pension funds will increase their holding at any point in the future depends therefore on the expected return of Real Estate by comparison with that required to justify a particular asset holding. Using the technique of Modern Portfolio Theory (MPT), this paper assesses the required return that Real Estate would have to offer to justify a 15% holding in a mixed asset portfolio. This figure and the risk/return characteristics of the major asset classes is taken from survey data. Under a number of scenarios it is found that Real Estate can play a part in a mixed asset portfolio at the 15% level. In some cases however, the expected returns of Real Estate are not sufficient to justify a weight of 15% in this asset.

The future returns for property required by UK pension funds: the BHS data

Previous studies of the place of Property in the multi-asset portfolio have generally relied on historical data, and have been concerned with the supposed risk reduction effects that Property would have on such portfolios. In this paper a different approach has been taken. Not only are expectations data used, but we have also concentrated upon the required return that Property would have to offer to achieve a holding of 15% in typical UK pension fund portfolios. Using two benchmark portfolios for pension funds, we have shown that Property's required return is less than that expected, and therefore it could justify a 15% holding.

Required returns for real estate in UK pension fund portfolios

The position of Real Estate within a multi-asset portfolio has received considerable attention recently. Previous research has concentrated on the percentage holding property would achieve given its risk/return characteristics. Such studies have invariably used Modern Portfolio Theory and these approaches have been criticised for both the quality of the real estate data and problems with the methodology itself. The first problem is now well understood, and the second can be addressed by the use of realistic constraints on asset holdings. This paper takes a different approach. We determine the level of return that Real Estate needs to achieve to justify an allocation within the multi asset portfolio. In order to test the importance of the quality of the data we use historic appraisal based and desmoothed returns to examine the sensitivity of the results. Consideration is also given to the Holding period and the imposition of realistic constraints on the asset holdings in order to model portfolios held by pension fund investors. We conclude, using several benchmark levels of portfolio risk and return, that using appraisal based data the required level of return for Real Estate was less than that achieved over the period 1972-1993. The use of desmoothed series can reverse this result at the highest levels of desmoothing although within a restricted holding period Real Estate offered returns in excess of those required to enter the portfolio and might have a role to play in the multi-asset portfolio.

A reappraisal of blood clotting response tests for anticoagulant resistance and a proposal for a standardised BCR test methodology

Blood clotting response (BCR) resistance tests are available for a number of anticoagulant rodenticides. However, during the development of these tests many of the test parameters have been changed, making meaningful comparisons between results difficult. It was recognised that a standard methodology was urgently required for future BCR resistance tests and, accordingly, this document presents a reappraisal of published tests, and proposes a standard protocol for future use (see Appendix). The protocol can be used to provide information on the incidence and degree of resistance in a particular rodent population; to provide a simple comparison of resistance factors between active ingredients, thus giving clear information about cross-resistance for any given strain; and to provide comparisons of susceptibility or resistance between different populations. The methodology has a sound statistical basis in being based on the ED50 response, and requires many fewer animals than the resistance tests in current use. Most importantly, tests can be used to give a clear indication of the likely practical impact of the resistance on field efficacy. The present study was commissioned and funded by the Rodenticide Resistance Action Committee (RRAC) of CropLife International.

Modelling economic returns to plant variety protection in the UK

This paper attempts an empirical assessment of the incentive effects of plant variety protection regimes in the generation of crop variety innovations. A duration model of plant variety protection certificates is used to infer the private appropriability of returns from agricultural crop variety innovations in the UK over the period 1965-2000. The results suggest that plant variety protection provides only modest appropriability of returns to innovators of agricultural crop varieties. The value distribution of plant variety protection certificates is highly skewed with a large proportion of innovations providing virtually no returns to innovators. Increasing competition from newer varieties appears to have accelerated the turnover of varieties reducing appropriability further. Plant variety protection emerges as a relatively weak instrument of protection.

Standardised ileal digestibility of crude protein and amino acids of UK-grown peas and faba beans by broilers

In view of the increasing interest in home-grown legumes as components of diets for non-ruminant livestock and in an attempt to reduce the reliance on imported soya bean meal (SBM), two experiments were conducted to evaluate samples of peas and faba beans for their standardised ileal digestibility (SID) of amino acids determined with young broiler chicks. Experiment 1 evaluated six faba bean and seven pea cultivars and Experiment 2 evaluated two faba bean and three pea cultivars as well as a sample of soya bean meal provided as a reference material. Peas and beans were added at 750g/kg as the only source of protein/amino acids in a semi-synthetic diet containing the inert marker titanium dioxide; SBM was added, in a control diet, at 500g/kg. Each diet was fed to six replicates of a cage containing two Ross-type broilers for 96h at which point birds were culled allowing removal of ileal digesta. Chemical analyses allowed the calculation of the coefficient of SID of amino acids. There were no differences between samples of the same pulse species (P>0.05) but peas had higher values (P<0.05), similar to SBM, than beans. Trypsin inhibitor content (expressed as g trypsin inhibitor units/mg sample) of all pea samples was low and in the range 0.83–1.77mg/kg. There was relatively little variation in bean tannin content and composition amongst the coloured-flowered varieties; however, the white-flowered cultivar had no tannins. There was no correlation between tannin content and coefficient of SID. The content of SID of amino acids (g/kg legume) was higher in SBM when compared with peas and beans by virtue of having higher total concentrations.

Serial persistence in individual real estate returns in the UK

Purpose – The purpose of this paper is to examine individual level property returns to see whether there is evidence of persistence in performance, i.e. a greater than expected probability of well (badly) performing properties continuing to perform well (badly) in subsequent periods. Design/methodology/approach – The same methodology originally used in Young and Graff is applied, making the results directly comparable with those for the US and Australian markets. However, it uses a much larger database covering all UK commercial property data available in the Investment Property Databank (IPD) for the years 1981 to 2002 – as many as 216,758 individual property returns. Findings – While the results of this study mimic the US and Australian results of greater persistence in the extreme first and fourth quartiles, they also evidence persistence in the moderate second and third quartiles, a notable departure from previous studies. Likewise patterns across property type, location, time, and holding period are remarkably similar. Research limitations/implications – The findings suggest that performance persistence is not a feature unique to particular markets, but instead may characterize most advanced real estate investment markets. Originality/value – As well as extending previous research geographically, the paper explores possible reasons for such persistence, consideration of which leads to the conjecture that behaviors in the practice of institutional-grade commercial real estate investment management may themselves be deeply rooted and persistent, and perhaps influenced for good or ill by agency effects. - See more at: http://www.emeraldinsight.com/journals.htm?articleid=1602884&show=abstract#sthash.hc2pCmC6.dpuf

Does consumption-wealth ratio signal stock returns? VECM results for Germany

This paper studies the signalling effect of the consumption−wealth ratio (cay) on German stock returns via vector error correction models (VECMs). The effect of cay on U.S. stock returns has been recently confirmed by Lettau and Ludvigson with a two−stage method. In this paper, performance of the VECMs and the two−stage method are compared in both German and U.S. data. It is found that the VECMs are more suitable to study the effect of cay on stock returns than the two−stage method. Using the Conditional−Subset VECM, cay signals real stock returns and excess returns in both data sets significantly. The estimated coefficient on cay for stock returns turns out to be two times greater in U.S. data than in German data. When the two−stage method is used, cay has no significant effect on German stock returns. Besides, it is also found that cay signals German wealth growth and U.S. income growth significantly.

Towards a standardised metadata protocol for urban meteorological networks

With the growing number and significance of urban meteorological networks (UMNs) across the world, it is becoming critical to establish a standard metadata protocol. Indeed, a review of existing UMNs indicate large variations in the quality, quantity, and availability of metadata containing technical information (i.e., equipment, communication methods) and network practices (i.e., quality assurance/quality control and data management procedures). Without such metadata, the utility of UMNs is greatly compromised. There is a need to bring together the currently disparate sets of guidelines to ensure informed and well-documented future deployments. This should significantly improve the quality, and therefore the applicability, of the high-resolution data available from such networks. Here, the first metadata protocol for UMNs is proposed, drawing on current recommendations for urban climate stations and identified best practice in existing networks

Quantile forecasts of daily exchange rate returns from forecasts of realized volatility

Quantile forecasts are central to risk management decisions because of the widespread use of Value-at-Risk. A quantile forecast is the product of two factors: the model used to forecast volatility, and the method of computing quantiles from the volatility forecasts. In this paper we calculate and evaluate quantile forecasts of the daily exchange rate returns of five currencies. The forecasting models that have been used in recent analyses of the predictability of daily realized volatility permit a comparison of the predictive power of different measures of intraday variation and intraday returns in forecasting exchange rate variability. The methods of computing quantile forecasts include making distributional assumptions for future daily returns as well as using the empirical distribution of predicted standardized returns with both rolling and recursive samples. Our main findings are that the Heterogenous Autoregressive model provides more accurate volatility and quantile forecasts for currencies which experience shifts in volatility, such as the Canadian dollar, and that the use of the empirical distribution to calculate quantiles can improve forecasts when there are shifts