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.

Asymmetric response of demand-supply mismatch to investor's sentiment

We look through both the demand and supply side information to understand dynamics of price determination in the real estate market and examine how accurately investors’ attitudes predict the market returns and thereby flagging off extent of any demand-supply mismatch. Our hypothesis is based on the possibility that investors’ call for action in terms of their buy/sell decision and adjustment in reservation/offer prices may indicate impending demand-supply imbalances in the market. In the process, we study several real estate sectors to inform our analysis. The timeframe of our analysis (1995-2010) allows us to observe market dynamics over several economic cycles and in various stages of those cycles. Additionally, we also seek to understand how investors’ attitude or the sentiment affects the market activity over the cycles through asymmetric responses. We test our hypothesis variously using a number of measures of market activity and attitude indicators within several model specifications. The empirical models are estimated using Vector Error Correction framework. Our analysis suggests that investors’ attitude exert strong and statistically significant feedback effects in price determination. Moreover, these effects do reveal heterogeneous responses across the real estate sectors. Interestingly, our results indicate the asymmetric responses during boom, normal and recessionary periods. These results are consistent with the theoretical underpinnings.

What people study when they study Twitter: classifying Twitter related academic papers

PURPOSE: Since its introduction in 2006, messages posted to the microblogging system Twitter have provided a rich dataset for researchers, leading to the publication of over a thousand academic papers. This paper aims to identify this published work and to classify it in order to understand Twitter based research. DESIGN/METHODOLOGY/APPROACH: Firstly the papers on Twitter were identified. Secondly, following a review of the literature, a classification of the dimensions of microblogging research was established. Thirdly, papers were qualitatively classified using open coded content analysis, based on the paper’s title and abstract, in order to analyze method, subject, and approach. FINDINGS: The majority of published work relating to Twitter concentrates on aspects of the messages sent and details of the users. A variety of methodological approaches are used across a range of identified domains. RESEARCH LIMITATIONS/IMPLICATIONS: This work reviewed the abstracts of all papers available via database search on the term “Twitter” and this has two major implications: 1) the full papers are not considered and so works may be misclassified if their abstract is not clear, 2) publications not indexed by the databases, such as book chapters, are not included. ORIGINALITY/VALUE: To date there has not been an overarching study to look at the methods and purpose of those using Twitter as a research subject. Our major contribution is to scope out papers published on Twitter until the close of 2011. The classification derived here will provide a framework within which researchers studying Twitter related topics will be able to position and ground their work