Flight to quality? An investigation of changing price spreads in commercial real estate markets

Purpose – The purpose of this paper is to investigate the effect of the crisis on the pricing of asset quality attributes. This paper uses sales transaction data to examine whether flight from risk phenomena took place in the US office market during the financial crisis of 2007-2009. Design/methodology/approach – Hedonic regression procedures are used to test the hypothesis that the spread between the pricing of low-quality and high-quality characteristics increased during the crisis period compared to the pre-crisis period. Findings – The results of the hedonic regression models suggest that the price spread between Class A and other properties grew significantly during the downturn. Research limitations/implications – Our results are consistent with the hypothesis of an increased price spread following a market downturn between Class A and non-Class A offices. The evidence suggests that the relationships between the returns on Class A and non-Class A assets changed during the period of market stress or crisis. Practical implications – These findings have implications for real estate portfolio construction. If regime switches can be predicted and/or responded to rapidly, portfolios may be rebalanced. In crisis periods, portfolios might be reweighted towards Class A properties and in positive market periods, the reweighting would be towards non-Class A assets. Social implications – The global financial crisis has demonstrated that real estate markets play a crucial role in modern economies and that negative developments in these markets have the potential to spillover and create contagion for the larger economy, thereby affecting jobs, incomes and ultimately people’s livelihoods. Originality/value – This is one of the first studies that address the flight to quality phenomenon in commercial real estate markets during periods of financial crisis and market turmoil.

A Discussion of Globalization Theories - Through International Consumer Perceptions

Globalization has developed more and more within the business world as well as private life during the last decades. Globalization has influenced the way companies are conducting business and their approach towards the consumers which can have an influence on their way of purchasing. Consumers nowadays have more than ever the possibility to get involved and gather experiences from abroad, as well as companies are taking advantage of this globalization. Within this thesis the following question will be discussed: Do consumers see the value companies try to create for them with an identical offer the same way in different markets? This idea is based on Theodore Levitt’s theory of globalization which comprises standardization of an offer since consumer needs are homogenizing globally. Douglas & Wind instead state that segmentation with adaptations is necessary to fulfill all consumer needs. Within this elaboration the question whether standardization is accepted and liked by the consumers is discussed and analyzed by including an empirical research. This research is based on Zeithaml’s model of the Perceived Quality Components, which was the fundamental base behind formulating the survey questions. These were submitted in Germany, the Republic of Ireland and Sweden to be able to discuss and visualize how the consumers of these different markets perceive different aspects of a company’s offer. One particular company, which is seen as doing business globally, was chosen as a test object. Based on the test object Lidl - which consumers were questioned about in the survey - it was possible to conduct a comparison of consumers’ general expectations against components of Lidl’s offer such as price, weekly specials, product range, etc. where differences and similarities between the three countries of Lidl’s fulfillment of these expectations were achieved. They were analyzed to discover to which extent globalization is present. Resulting from the comparison it was concluded that nowadays segmentation is important but developing with time globalization seems to increase in significance. Recommendations for further research about topics which were omitted due to limited resources are presented.

Enhancing the distribution of Swedish tourism services on international markets : Possible export-ready criteria requisitioned by European tour operators

This paper identifies subjects which are relevant for Swedish suppliers of tourism services beforeapproaching foreign markets. Most suppliers are micro, small or medium sized companies anduse intermediaries, such as tour operators, for internationalization. The research considers theopinion of British and German tour operators, which require some criteria beforehand in orderto simplify both the initialization and the development of cooperation. Destination marketingorganizations (DMOs) are hereby the go-betweens since they not only represent small-scalesuppliers on international markets, but also initiate first encounters between suppliers and touroperators. Suppliers need to provide DMOs with accurate information in order to ensure thebest possible representation. After initializing collaboration, business relationships are sought todevelop in order to facilitate long-term cooperation. Proper preparation forms therefore the basefor strengthening the competitiveness of Swedish tourism prior approaching internationalmarkets. The enhancement of distributing Swedish tourism services on foreign markets appearedto be a profitable way to enable further growth, which is strongly limited on the domestic market.Increasing the export share therefore secures and further facilitates tourism’s valuablecontributions to the Swedish economy.

Defining Relevant Product Markets for Pharmaceuticals

To identify the relevant product markets for Swedish pharmaceuticals, a spatial econometrics approach is employed. First, we calculate Moran’s Is for different market definitions and then we use a spatial Durbin model to determine the effect of price changes on quantity sold off own and competing products. As expected, the results show that competition is strongest between close substitutes; however, the relevant product markets for Swedish pharmaceuticals extend beyond close substitutes down to products included in the same class on the four-digit level of the Anatomic Therapeutic Chemical system as defined by the World Health Organization. The spatial regression model further indicates that increases in the price of a product significantly lower the quantity sold of that product and in the same time increase the quantity sold of competing products. For close substitutes (products belonging to the same class on the seven-digit level of the Anatomic Therapeutic Chemical system), as well as for products that, without being close substitutes, belong to the same therapeutic/pharmacological/chemical subgroup (the same class on the five-digit level of the Anatomic Therapeutic Chemical system), a significant change towards increased competition is also visible after 1 July 2009 when the latest policy changes with regards to pharmaceuticals have been implemented in Sweden.

Extended local labor markets due to high speed trains : Visualization of estimations in the Swedish national travel demand forecasting tool, SAMPERS

Wider economic benefits resulting from extended geographical mobility is one argument for investments in high-speed rail. More specifically, the argument for high-speed trains in Sweden has been that they can help to further spatially extend labor market regions which in turn has a positive effect on growth and development. In this paper the aim is to cartographically visualize the potential size of the labor markets in areas that could be affected by possible future high-speed trains. The visualization is based on the forecasts of labor mobility with public transport made by the Swedish national mobility transport forecasting tool, SAMPERS, for two alternative high-speed rail scenarios. The analysis, not surprisingly, suggests that the largest impact of high-speed trains results in the area where the future high speed rail tracks are planned to be built. This expected effect on local labor market regions of high-speed trains could mean that possible regional economic development effects also are to be expected in this area. However, the results, in general, from the SAMPERS forecasts indicaterelatively small increases in local labor market potentials.

Predicting entry of Swedish wholesale firms into local markets

Applying microeconomic theory, we develop a forecasting model for firm entry into local markets and test this model using data from the Swedish wholesale industry. The empirical analysis is based on directly estimating the profit function of wholesale firms. As in previous entry studies, profits are assumed to depend on firm- and location-specific factors,and the profit equation is estimated using panel data econometric techniques. Using the residuals from the profit equation estimations, we identify local markets in Sweden where firm profits are abnormally high given the level of all independent variables included in the profit function. From microeconomic theory, we then know that these local markets should have higher net entry than other markets, all else being equal, and we investigate this in a second step,also using a panel data econometric model. The results of estimating the net-entry equation indicate that four of five estimated models have more net entry in high-return municipalities, but the estimated parameter is only statistically significant at conventional levels in one of our estimated models.

Stock Markets and Household Wealth: Can a Stock Market Crash Cause a Recession in The U.S. Economy?

Stock market wealth effects on the level of consumption in the United States economy have been constantly debated; there is evidence for arguments for and against its prominence and its symmetry. This paper seeks to investigate the strength of its negative effect by creating models to analyze unexpected shocks to the Standard and Poor's 500 index. First, a transmission mechanism between the stock market and GDP is established through the use of second-order vector autoregressive models. Following which, theory from the life cycle model and adaptations of previous researchers' models are used to create a structural model. This paper finds that stock market wealth effects are small, but important to consider, especially if markets are overpriced; this claim is corroborated by evidence from simulation of 'alternative scenarios' and the historical experiences of 1987 and 2001.

Innocents Abroad: Gary Newton manages global efforts to help the world's most vulnerable children

Gary Newton ’72 manages global efforts to help vulnerable kids.

Corporate capital structure revisited: incomplete markets and default

After Modigliani and Miller (1958) presented their capital structure irrelevance proposition, analysis of corporate Önancing choices involving debt and equity instruments have generally followed two trends in the literature, where models either incorporate informational asymmetries or introduce tax beneÖts in order to explain optimal capital structure determination (Myers, 2002). None of these features is present in this paper, which develops an asset pricing model with the purpose of providing a positive theory of corporate capital structure by replicating main aspects of standard contractual practice observed in real markets. Alternatively, the imperfect market structure of the economy is tailored to match what is most common in corporate reality. Allowance for default on corporate debt with an associated penalty of seizure of Örmís future cash áows by creditors is introduced, for instance. In this context, a qualitative assessment of Önancial managersídecisions is carried out through numerical procedures.

Are price limits on futures markets that cool? evidence from the brazilian merchantile & futures exchange

This paper investigates the impact of price limits on the Brazil- ian future markets using high frequency data. The aim is to identify whether there is a cool-off or a magnet effect. For that purpose, we examine a tick-by-tick data set that includes all contracts on the São Paulo stock index futures traded on the Brazilian Mercantile and Futures Exchange from January 1997 to December 1999. Our main finding is that price limits drive back prices as they approach the lower limit. There is a strong cool-off effect of the lower limit on the conditional mean, whereas the upper limit seems to entail a weak magnet effect on the conditional variance. We then build a trading strategy that accounts for the cool-off effect so as to demonstrate that the latter has not only statistical, but also economic signifi- cance. The resulting Sharpe ratio indeed is way superior to the buy-and-hold benchmarks we consider.

Equilibria in security markets with a continuum of agents

We prove the existence of a competitive equilibrium for exchange economies with a measure space of agents and for which the commodity space is ` p, 1 < p < +∞. A vector x = (xn) in ` p may be interpreted as a security which promises to deliver xn units of numeraire at state (or date) n. Under assumptions imposing uniform bounds on marginal rates of substitution, positive results on core-Walras equivalence were established in Rustichini–Yannelis [21] and Podczeck [20]. In this paper we prove that under similar assumptions on marginal rates of substitution, the set of competitive equilibria (and thus the core) is non-empty.

Are price limits on futures markets that cool?: evidence from the Brazilian Mercantile and Futures Exchange

This paper investigates the impact of price limits on the Brazilian futures markets using high frequency data. The aim is to identify whether there is a cool-off or a magnet effect. For that purpose, we examine a tick-by-tick data set that includes all contracts on the S˜ao Paulo stock index futures traded on the Brazilian Mercantile and Futures Exchange from January 1997 to December 1999. The results indicate that the conditional mean features a floor cool-off effect, whereas the conditional variance significantly increases as the price approaches the upper limit. We then build a trading strategy that accounts for the cool-off effect in the conditional mean so as to demonstrate that the latter has not only statistical, but also economic significance. The in-sample Sharpe ratio indeed is way superior to the buy-and-hold benchmarks we consider, whereas out-of-sample results evince similar performances.