Residential property loans and bank performance during property price booms: evidence from Europe

Understanding the performance of banks is of the utmost importance due to the impact the sector may have on economic growth and financial stability. Residential mortgage loans constitute a large proportion of the portfolio of many banks and are one of the key assets in the determination of their performance. Using a dynamic panel model, we analyse the impact of residential mortgage loans on bank profitability and risk, based on a sample of 555 banks in the European Union (EU-15), over the period from 1995 to 2008. We find that an increase in residential mortgage loans seems to improve bank’s performance in terms of both profitability and credit risk in good market, pre-financial crisis, conditions. These findings may aid in explaining why banks rush to lend to property during booms because of the positive effect it has on performance. The results also show that credit risk and profitability are lower during the upturn in the residential property cycle.

Commodity price dynamics and derivatives valuation: a review

This paper reviews extant research on commodity price dynamics and commodity derivatives pricing models. In the first half, we provide an overview of stylized facts of commodity price behavior that have been explored and documented in the theoretical and empirical literature. In the second half, we review existing derivatives pricing models and discuss how the peculiarities of commodity markets have been integrated in these models. We conclude the paper with a brief outlook on important research questions that need to be addressed in the future.

Size and molecular flexibility affect the binding of ellagitannins to bovine serum albumin

Binding to bovine serum albumin of monomeric (vescalagin and pedunculagin) and dimeric ellagitannins (roburin A, oenothein B, and gemin A) was investigated by isothermal titration calorimetry and fluorescence spectroscopy, which indicated two types of binding sites. Stronger and more specific sites exhibited affinity constants, K1, of 104–106 M–1 and stoichiometries, n1, of 2–13 and dominated at low tannin concentrations. Weaker and less-specific binding sites had K2 constants of 103–105 M–1 and stoichiometries, n2, of 16–30 and dominated at higher tannin concentrations. Binding to stronger sites appeared to be dependent on tannin flexibility and the presence of free galloyl groups. Positive entropies for all but gemin A indicated that hydrophobic interactions dominated during complexation. This was supported by an exponential relationship between the affinity, K1, and the modeled hydrophobic accessible surface area and by a linear relationship between K1 and the Stern–Volmer quenching constant, KSV.

On the flexibility of attention to race

Research on the flexibility of race-based processing offers divergent results. Some studies find that race affects processing in an obligatory fashion. Other studies suggest dramatic flexibility. The current study attempts to clarify this divergence by examining a process that may mediate flexibility in race-based processing: the engagement of visual attention. In this study, White participants completed an exogenous cuing task designed to measure attention to White and Black faces. Participants in the control condition showed a pronounced bias to attend to Black faces. Critically, participants in a goal condition were asked to process a feature of the stimulus that was unrelated to race. The induction of this goal eliminated differential attention to Black faces, suggesting that attentional engagement responds flexibly to top-down goals, rather than obligatorily to bottom-up racial cues.

Flexibility of representational states in working memory

The relationship between working memory (WM) and attention is a highly interdependent one, with evidence that attention determines the state in which items in WM are retained. Through focusing of attention, an item might be held in a more prioritized state, commonly termed as the focus of attention (FOA). The remaining items, although still retrievable, are considered to be in a different representational state. One means to bring an item into the FOA is to use retrospective cues (‘retro-cues’) which direct attention to one of the objects retained in WM. Alternatively, an item can enter a privileged state once attention is directed towards it through bottom-up influences (e.g. recency effect) or by performing an action on one of the retained items (‘incidental’ cueing). In all these cases, the item in the FOA is recalled with better accuracy compared to the other items in WM. Far less is known about the nature of the other items in WM and whether they can be flexibly manipulated in and out of the FOA. We present data from three types of experiments as well as transcranial magnetic stimulation to early visual cortex to manipulate the item inside FOA. Taken together, our results suggest that the context in which items are retained in WM matters. When an item remains behaviourally relevant, despite not being inside the FOA, re-focusing attention upon it can increase its recall precision. This suggests that a non-FOA item can be held in a state in which it can be later retrieved. However, if an item is rendered behaviourally unimportant because it is very unlikely to be probed, it cannot be brought back into the FOA, nor recalled with high precision. Under such conditions, some information appears to be irretrievably lost from WM. These findings, obtained from several different methods, demonstrate quite considerable flexibility with which items in WM can be represented depending upon context. They have important consequences for emerging state-dependent models of WM.

Time-varying price discovery in the eighteenth century: empirical evidence from the London and Amsterdam stock markets

This paper examines the time-varying nature of price discovery in eighteenth century cross-listed stocks. Specifically, we investigate how quickly news is reflected in prices for two of the great moneyed com- panies, the Bank of England and the East India Company, over the period 1723 to 1794. These British companies were cross-listed on the London and Amsterdam stock exchange and news between the capitals flowed mainly via the use of boats that transported mail. We examine in detail the historical context sur- rounding the defining events of the period, and use these as a guide to how the data should be analysed. We show that both trading venues contributed to price discovery, and although the London venue was more important for these stocks, its importance varies over time.

House price dynamics in Panama City

In this paper, we analyze the drivers of the housing markets in Panama City. To the best of our knowledge, no formal academic analysis has been documented on the Panamanian housing market. In this paper, we outline key unique characteristics of the market and provide a brief review of broader economic indicators and housing market literature. Using a unique dataset comprising property-level information over 2007–2014, we employ a hedonic modeling framework to analyze the impacts of certain amenities and drivers that may affect housing values. The results indicate several unique features of the Panamanian housing market.

Time varying price discovery

We show how multivariate GARCH models can be used to generate a time-varying “information share” (Hasbrouck, 1995) to represent the changing patterns of price discovery in closely related securities. We find that time-varying information shares can improve credit spread predictions.

House price dynamics and bank herding: European empirical evidence

This paper investigates the behavior of residential property and examines the linkages between house price dynamics and bank herding behavior. The analysis presents evidence that irrational behaviour may have played a significant role in several countries, including; United Kingdom, Spain, Denmark, Sweden and Ireland. In addition, we also provide evidence indicative of herding behaviour in the European residential mortgage loan market. Granger Causality tests indicate that non-fundamentally justified prices dynamics contributed to herding by lenders and that this behaviour was a response by the banks as a group to common information on residential property assets. In contrast, in Germany, Portugal and Austria, residential property prices were largely explained by fundamentals. Furthermore, these countries show no evidence of either irrational price bubbles or herd behaviour in the mortgage market. Granger Causality tests indicate that both variables are independent.

Peak residential electricity demand and social practices: Deriving flexibility and greenhouse gas intensities from time use and locational data

Peak residential electricity demand takes place when people conduct simultaneous activities at specific times of the day. Social practices generate patterns of demand and can help understand why, where, with whom and when energy services are used at peak time. The aim of this work is to make use of recent UK time use and locational data to better understand: (i) how a set of component indices on synchronisation, variation, sharing and mobility indicate flexibility to shift demand; and (ii) the links between people’s activities and peaks in greenhouse gases’ intensities. The analysis is based on a recent UK time use dataset, providing 1 minute interval data from GPS devices and 10 minute data from diaries and questionnaires for 175 data days comprising 153 respondents. Findings show how greenhouse gases’ intensities and flexibility to shift activities vary throughout the day. Morning peaks are characterised by high levels of synchronisation, shared activities and occupancy, with low variation of activities. Evening peaks feature low synchronisation, and high spatial mobility variation of activities. From a network operator perspective, the results indicate that periods with lower flexibility may be prone to more significant local network loads due to the synchronization of electricity-demanding activities.

The probability of sale and price premiums in withdrawn auctioned properties

This paper examines the impact of the auction process of residential properties that whilst unsuccessful at auction sold subsequently. The empirical analysis considers both the probability of sale and the premium of the subsequent sale price over the guide price, reserve and opening bid. The findings highlight that the final achieved sale price is influenced by key price variables revealed both prior to and during the auction itself. Factors such as auction participation, the number of individual bidders and the number of bids are significant in a number of the alternative specifications.

The role of index trading in price formation in the grains and oilseeds markets

We use both Granger-causality and instrumental variables (IV) methods to examine the impact of index fund positions on price returns for the main US grains and oilseed futures markets. Our analysis supports earlier conclusions that Granger-causal impacts are generally not discernible. However, market microstructure theory suggests trading impacts should be instantaneous. IV-based tests for contemporaneous causality provide stronger evidence of price impact. We find even stronger evidence that changes in index positions can help predict future changes in aggregate commodity price indices. This result suggests that changes in index investment are in part driven by information which predicts commodity price changes over the coming months.

Output sustainability to exogenous and endogenous shocks: evidence from emerging economies

This paper studies the impact of exogenous and endogenous shocks (exogenous shock is used interchangeably with external shock; endogenous shock is used interchangeably with domestic shock) on output fluctuations in post-communist countries during the 2000s. The first part presents the analytical framework and formulates a research hypothesis. The second part presents vector autoregressive estimation and analysis model proposed by Pesaran (2004) and Pesaran and Smith (2006) that relates bank real lending, the cyclical component of output and spreads and accounts for cross-sectional dependence (CD) across the countries. Impulse response functions show that exogenous positive shock lead to a drop in output sustainability for 9 over 12 Central Eastern European countries and Russia, when the endogenous shock is mild and ambiguous. Moreover, the effect of exogenous shock is more significant during the crises. Variance decompositions show that exogenous shock in the aftermath of crisis had a substantial impact on economic activity of emerging economies.

Time-variations in commodity price jumps

In this paper, we study jumps in commodity prices. Unlike assumed in existing models of commodity price dynamics, a simple analysis of the data reveals that the probability of tail events is not constant but depends on the time of the year, i.e. exhibits seasonality. We propose a stochastic volatility jump–diffusion model to capture this seasonal variation. Applying the Markov Chain Monte Carlo (MCMC) methodology, we estimate our model using 20 years of futures data from four different commodity markets. We find strong statistical evidence to suggest that our model with seasonal jump intensity outperforms models featuring a constant jump intensity. To demonstrate the practical relevance of our findings, we show that our model typically improves Value-at-Risk (VaR) forecasts.

Endogenous managerial compensation contracts in experimental quantity-setting duopolies

Given the ongoing debate on managerial compensation schemes, our paper offers empirical insights on the strategic choice of firms' owners over the terms of a managerial compensation contract, as a commitment device aiming at gaining competitive advantage in the product market. In a quantity setting duopoly we experimentally test whether firms' owners compensate their managers through contracts combining own profits either with revenues or with relative performance, and the resulting managerial behaviour in the product market. Prominent among our results is that firms' owners choose relative performance over profit revenue contracts more frequently. Further, firms' owners successfully induce a more aggressive behaviour by their managers in the market, by setting incentives which deviate from strict profit maximization.