Explaining deviations from NAV in UK property companies: rationality and sentimentality

One of the most vexing issues for analysts and managers of property companies across Europe has been the existence and persistence of deviations of Net Asset Values of property companies from their market capitalisation. The issue has clear links to similar discounts and premiums in closed-end funds. The closed end fund puzzle is regarded as an important unsolved problem in financial economics undermining theories of market efficiency and the Law of One Price. Consequently, it has generated a huge body of research. Although it can be tempting to focus on the particular inefficiencies of real estate markets in attempting to explain deviations from NAV, the closed end fund discount puzzle indicates that divergences between underlying asset values and market capitalisation are not a ‘pure’ real estate phenomenon. When examining potential explanations, two recurring factors stand out in the closed end fund literature as often undermining the economic rationale for a discount – the existence of premiums and cross-sectional and periodic fluctuations in the level of discount/premium. These need to be borne in mind when considering potential explanations for real estate markets. There are two approaches to investigating the discount to net asset value in closed-end funds: the ‘rational’ approach and the ‘noise trader’ or ‘sentiment’ approach. The ‘rational’ approach hypothesizes the discount to net asset value as being the result of company specific factors relating to such factors as management quality, tax liability and the type of stocks held by the fund. Despite the intuitive appeal of the ‘rational’ approach to closed-end fund discounts the studies have not successfully explained the variance in closed-end fund discounts or why the discount to net asset value in closed-end funds varies so much over time. The variation over time in the average sector discount is not only a feature of closed-end funds but also property companies. This paper analyses changes in the deviations from NAV for UK property companies between 2000 and 2003. The paper present a new way to study the phenomenon ‘cleaning’ the gearing effect by introducing a new way of calculating the discount itself. We call it “ungeared discount”. It is calculated by assuming that a firm issues new equity to repurchase outstanding debt without any variation on asset side. In this way discount does not depend on an accounting effect and the analysis should better explain the effect of other independent variables.

Lifetime cost of stroke subtypes in Australia: findings from the North East Melbourne stroke incidence study (NEMESIS)

Background and Purpose-: Little is known about any variations in resource use and costs of care between stroke subtypes, especially nonhospital costs. The purpose of this study was to describe the patterns of resource use and to estimate the first-year and lifetime costs for stroke subtypes.

Methods-: A cost-of-illness model was used to estimate the total first-year costs and lifetime costs of stroke subtypes for all strokes (subarachnoid hemorrhages excluded) that occurred in Australia during 1997. For each subtype, average cost per case during the first year and the present value of average cost per case over a lifetime were calculated. Resource use data obtained in the North East Melbourne Stroke Incidence Study (NEMESIS) were used.

Results-: The present value of total lifetime costs for all strokes was Aus $1.3 billion (US $985 million). Total lifetime costs were greatest for ischemic stroke (72%; Aus $936.8 million; US $709.7 million), followed by intracerebral hemorrhage (26%; Aus $334.5 million; US $253.4 million) and unclassified stroke (2%; Aus $30 million; US $22.7 million). The average cost per case during the first year was greatest for total anterior circulation infarction (Aus $28 266). Over a lifetime, the present value of average costs was greatest for intracerebral hemorrhage (Aus $73 542), followed by total anterior circulation infarction (Aus $53 020), partial anterior circulation infarction (Aus $50 692), posterior circulation infarction (Aus $37 270), lacunar infarction (Aus $34 470), and unclassified stroke (Aus $12 031).

Conclusions-: First-year and lifetime costs vary considerably between stroke subtypes. Variation in average length of total hospital stay is the main explanation for differences in first-year costs.

Cost of stroke in Australia from a societal perspective: results from the north east Melbourne stroke incidence study (NEMESIS)

Background and Purpose—— Accurate information about resource use and costs of stroke is necessary for informed health service planning. The purpose of this study was to determine the patterns of resource use among stroke patients and to estimate the total costs (direct service use and indirect production losses) of stroke (excluding SAH) in Australia for 1997.

Methods—— An incidence-based cost-of-illness model was developed, incorporating data obtained from the North East Melbourne Stroke Incidence Study (NEMESIS). The costs of stroke during the first year after stroke and the present value of total lifetime costs of stroke were estimated.

Results—— The total first-year costs of all first-ever-in-a lifetime strokes (SAH excluded) that occurred in Australia during 1997 were estimated to be A$555 million (US$420 million), and the present value of lifetime costs was estimated to be A$1.3 billion (US$985 million). The average cost per case during the first 12 months and over a lifetime was A$18 956 (US$14 361) and A$44 428 (US$33 658), respectively. The most important categories of cost during the first year were acute hospitalization (A$154 million), inpatient rehabilitation (A$150 million), and nursing home care (A$63 million). The present value of lifetime indirect costs was estimated to be A$34 million.

Conclusions—— Similar to other studies, hospital and nursing home costs contributed most to the total cost of stroke (excluding SAH) in Australia. Inpatient rehabilitation accounts for {approx}27% of total first-year costs. Given the magnitude of these costs, investigation of the cost-effectiveness of rehabilitation services should become a priority in this community.

The exchange rate disconnect puzzle: a resolution?

Early empirical studies of exchange rate determinants demonstrated that fundamentals-based monetary models were unable to outperform the benchmark random walk model in out-of-sample forecasts while later papers found evidence in favor of long-run exchange rate predictability. More recent theoretical works have adopted a microeconomic structure; a utility-based new open economy macroeconomic framework and a rational expectations present value model. Some recent empirical work argues that if the models are adjusted for parameter instability, it is a good predictor of nominal exchange rates while others use aggregate idiosyncratic volatility to generate good predictions. This latest research supports the idea that fundamental economic variables are likely to influence exchange rates especially in the long run and further that the emphasis should change to the economic value or utility based value to assess these macroeconomic models.

The cost-effectiveness of removing television advertising of high-fat and/or high-sugar food and beverages to Australian children

Objective: To model the health benefits and cost-effectiveness of banning television (TV) advertisements in Australia for energy-dense, nutrient-poor food and beverages during children's peak viewing times.

Methods: Benefits were modelled as changes in body mass index (BMI) and disability-adjusted life years (DALYs) saved. Intervention costs (AUD$) were compared with future health-care cost offsets from reduced prevalence of obesity-related health conditions. Changes in BMI were assumed to be maintained through to adulthood. The comparator was current practice, the reference year was 2001, and the discount rate for costs and benefits was 3%. The impact of the withdrawal of non-core food and beverage advertisements on children's actual food consumption was drawn from the best available evidence (a randomized controlled trial of advertisement exposure and food consumption). Supporting evidence was found in ecological relationships between TV advertising and childhood obesity, and from the effects of marketing bans on other products. A Working Group of stakeholders provided input into decisions surrounding the modelling assumptions and second-stage filters of 'strength of evidence', 'equity', 'acceptability to stakeholders', 'feasibility of implementation', 'sustainability' and 'side-effects'.

Results: The intervention had a gross incremental cost-effectiveness ratio of AUD$ 3.70 (95% uncertainty interval (UI) $2.40, $7.70) per DALY. Total DALYs saved were 37 000 (95% UI 16 000, 59 000). When the present value of potential savings in future health-care costs was considered (AUD$ 300m (95% UI $130m, $480m), the intervention was 'dominant', because it resulted in both a health gain and a cost offset compared with current practice.

Conclusions: Although recognizing the limitations of the available evidence, restricting TV food advertising to children would be one of the most cost-effective population-based interventions available to governments today. Despite its economic credentials from a public health perspective, the initiative is strongly opposed by food and advertising industries and is under review by the current Australian government.

Farmland prices, structural breaks and panel data

Previous time series evidence has indicated that farmland prices and cash rents are not cointegrated, a finding at odds with the present value model of farmland prices. We argue that this failure to find cointegration may be due to low power of tests and to the presence of structural change representing a shifting risk premium on farmland investments. To accommodate this possibility, we use panel unit root and cointegration methods that are more powerful than conventional time series methods and allow for breaks in the cointegration relationship. Our results, based on a large panel covering 31 US states between 1960 and 2000, suggest that the present value model of farmland prices cannot be rejected. © Oxford University Press and Foundation for the European Review of Agricultural Economics 2007; all rights reserved.

Current account and capital mobility hypothesis: Evidence from the G-7

This paper investigates an intertemporal optimization model in order to analyze the current account of the G-7 countries, measured as the present value of the future changes in net output. The study compares observed and forecasted series, generated by the model, using Campbell & Shiller’s (1987) methodology. In the estimation process, the countries are considered separately (with OLS technique) as well as jointly (SURE approach), to capture contemporaneous correlations of the shocks in net output. The paper also proposes a note on Granger causality and its implications to the optimal current account. The empirical results are sensitive to the technique adopted in the estimation process and suggest a rejection of the model in the G-7 countries, except for the USA and Japan, according to some papers presented in the literature.

Previsibilidade de retorno das ações no mercado brasileiro, através da aplicação de modelo de valor presente com retornos esperados constantes num contexto de expectativas racionais

Através de dados financeiros de ações negociadas na Bolsa de Valores de São Paulo, testa-se a validade do modelo de valor presente (MVP) com retornos esperados constantes ao longo do tempo (Campbell & Schiller, 1987). Esse modelo relaciona o preço de uma ação ao seu esperado fluxo de dividendos trazido a valor presente a uma taxa de desconto constante ao longo do tempo. Por trás desse modelo está a hipótese de expectativas racionais, bem como a hipótese de previsibilidade de preço futuro do ativo, através da inserção dos dividendos esperados no período seguinte. Nesse trabalho é realizada uma análise multivariada num arcabouço de séries temporais, utilizando a técnica de Auto-Regressões Vetoriais. Os resultados empíricos apresentados, embora inconclusivos, permitem apenas admitir que não é possível rejeitar completamente a hipótese de expectativas racionais para os ativos brasileiros.

Bubbles, collateral and monetary equilibrium

Consider an economy where infinite-lived agents trade assets collateralized by durable goods. We obtain results that rule out bubbles when the additional endowments of durable goods are uniformly bounded away from zero, regardless of whether the asset’s net supply is positive or zero. However, bubbles may occur, even for state-price processes that generate finite present value of aggregate wealth. First, under complete markets, if the net supply is being endogenously reduced to zero as a result of collateral repossession. Secondly, under incomplete markets, for a persistent positive net supply, under the general conditions guaranteeing existence of equilibrium. Examples of monetary equilibria are provided.

Testando o "dividend discountend model" com ações brasileiras

Este trabalho avalia a hipótese do Dividend Discounted Model ou Present Value Model, este modelo estabelece que o preço das ações é dado pelos dividendos futuros esperados antecipados por uma taxa apropriada de desconto. Utilizando dados de preços e dividendos de ações brasileiras, para os bancos Bradesco e Itaú, e a metodologia de vetores auto-regressivos, VAR, testamos se este modelo é respaldado empiricamente pelo comportamento dessas ações isoladamente. Como resultado geral temos uma aceitação de alguns aspectos não muito cruciais do modelo e uma forte rejeição da hipótese de que os dividendos sejam o fundamento do preço dessas ações, o que contradiz trabalhos anteriores realizados com a mesma metodologia para índices de ações.

Escolaridade e o diferencial de rendimentos entre o setor privado e o setor público no Brasil

We study the determinants of the public-private earning gap for different levels of schooling of Brazilian workers. First, using the current earnings as the variable of interest, it is estimated an earnings gap favorable to the less educated workers from the public sector. On the other hand, for workers with higher qualification the earnings gap disappears or becomes favorable to the private sector. Further, we considerate the different regimes of retirement in Brazil by creating the variable Present Value of Work Contract (PVWC). This variable is a measure of the life time earnings for each individual of our database. Different from the results of the current earnings, we found that the PVWC gap is favorable to the public sector even for the most schooling group of workers.

The costs of education, longevity and the poverty of nations

This paper explores the distortions on the cost of education, associated with government policies and institutional factors, as an additional determinant of cross-country income differences. Agents are finitely lived and the model takes into account life-cycle features of human capital accumulation. There are two sectors, one producing goods and the other providing educational services. The model is calibrated and simulated for 89 economies. We find that human capital taxation has a relevant impact on incomes, which is amplified by its indirect effect on returns to physical capital. Life expectancy plays an important role in determining long-run output: the expansion of the population working life increases the present value of the flow of wages, which induces further human capital investment and raises incomes. Although in our simulations the largest gains are observed when productivity is equated across countries, changes in longevity and in the incentives to educational investment are too relevant to ignore.

Previsão de preços de ativos usando restrições do modelo de valor presente

Motivados pelo debate envolvendo modelos estruturais e na forma reduzida, propomos nesse artigo uma abordagem empírica com o objetivo de ver se a imposição de restrições estruturais melhoram o poder de previsibilade vis-a-vis modelos irrestritos ou parcialmente restritos. Para respondermos nossa pergunta, realizamos previsões utilizando dados agregados de preços e dividendos de ações dos EUA. Nesse intuito, exploramos as restrições de cointegração, de ciclo comum em sua forma fraca e sobre os parâmetros do VECM impostas pelo modelo de Valor Presente. Utilizamos o teste de igualdade condicional de habilidade de previsão de Giacomini e White (2006) para comparar as previsões feitas por esse modelo com outros menos restritos. No geral, encontramos que os modelos com restrições parciais apresentaram os melhores resultados, enquanto o modelo totalmente restrito de VP não obteve o mesmo sucesso.

Elaboração de um modelo de valoração quantitativa das garantias para o setor de saneamento com utilização de Simulação de Monte Carlo: o caso PPP de Esgoto para a Região Metropolitana do Recife e Município de Goiânia

A situação do saneamento no Brasil é alarmante. Os serviços de água e esgotamento sanitário são prestados adequadamente somente para 59,4% e 39,7%, respectivamente, da população brasileira. Para mudar este quadro, estima-se que sejam necessários R$ 304 bilhões em investimentos. Parte desse volume terá que vir da iniciativa privada e a estruturação de parcerias público privadas é uma das formas de atingir este objetivo. Nestes projetos é comum o setor público oferecer garantias ao parceiro privado para assegurar a viabilidade do empreendimento. O presente trabalho apresenta um modelo para valoração destas garantias, utilizando como estudos de caso as PPP de esgoto da região metropolitana de Recife e do Município de Goiana. O resultado obtido mostrou a importância desta valoração, uma vez que dependendo do nível de garantia oferecida o valor presente dos desembolsos previstos para o setor público variou de zero a até R$ 204 milhões.

Economic viability of the piaucu Leporinus macrocephalus (Garavello & Britski, 1988) production

Brazilian fish farms presented an accelerated development during the early 90's, mainly because of the increase in fee-fishing operations. To meet the demand of this market, fish production and supply became excessive and, as a consequence, the number of fee-fishing operations, farmers and the final selling price, decreased. This study analyzes the technical aspects, production cost, profitability and economic viability of the production of piaucu (L. macrocephalus) in ponds, based on information from a rural property. Feeding and fingerling costs amount to approximately 47.1 % of the total production cost, representing together with the final selling price the most important factor affecting profitability. The payback period was 8.3 years, the liquid present value US$ 291.07, the internal return margin 9%, and the income-outcome ratio was 1.01, which represents an unattractive investment as a projection based on current conditions. The improvement in productive efficiency enhances the economic valuation index, and that the relative magnitude of cost and income are the most important points for the economic viability of the studied farm.