Search results

The author studies the role of safe assets accumulation in shaping the pattern of international capital flows.

The author combines a theoretical model and the empirical analysis. The model is a two-country open economy, while the evidence is based on a fixed-effect regression on a panel of 19 countries of the eurozone.

In an open two-country economy, a positive productivity shock raises both mean and variance of wealth accumulation rate, then, leading to a greater holding of safe assets for risk-sharing motivation. Upon financial integration, the shock can induce the outflows of net total capital. The evidence of 19 eurozone countries confirms the theory and also uncovers that the safe assets (bonds) are the dominant driver of cross-border capital flows within the eurozone.

The model can be extended to account for the impact of safe assets on the economic growth, then, analyzes the role of safe assets within financial globalization. Taking into account the impact of safe assets on the open-economy economic growth can be the next step to approach the issue.

The paper also provides important policy implication. Since a higher productivity level can raise the outflows of net total capital through the accumulation of foreign safe assets, an economy needs to increase its supply of safe asset along with upgrading its domestic productivity level. This combination is important for the long-run capital accumulation and economic growth of an economy with an increasing path of the productivity level.

The paper seeks a balance between theory and evidence on international capital flows. Moreover, the paper bridges the gap between the literature on international capital flows and the literature on safe assets. And the paper also focuses on the economies of the eurozone.

The idea of using stochastic control methods for theoretical studies of portfolio management has long been standard, with maximum expected utility criteria commonly being used. But in recent years a new kind of criterion, the risk sensitive criterion, has emerged from the control theory literature and been applied to portfolio management. This paper studies various economic properties of this criterion for portfolio management, thereby providing justification for its theoretical and practical use. In particular, it is shown that the risk sensitive criterion amounts to maximizing a portfolio's risk adjusted growth rate. In other words, it is essentially the same as what is commonly done in practice: find the best trade‐off between a portfolio's average return and its average volatility.

The authors analyze the equilibrium effects of non-tradable assets on optimal policy portfolios. They study how the existence of non-tradable assets impacts optimal asset allocation decisions of investors who own such assets and of investors who do not have access to non-tradable assets.

In this theoretical analysis, the authors analyze a model with tradable and non-tradable asset classes whose cash flows are jointly normally distributed. There are two types of investors, with and without access to non-tradable assets. All investors have constant absolute risk aversion preferences. The authors derive closed form solutions for optimal investor demand and equilibrium asset prices. They calibrated the model using US data for listed equity, bonds and private equity. Further, the authors illustrate the sensitivities of quantities and prices with respect to the main parameters.

The study finds that the existence of non-tradable assets has a large impact on optimal asset allocation. Investors with (without) access to non-tradable assets tilt their portfolios of tradable assets away from (toward) assets to which non-tradable assets exhibit positive betas.

The model provides important insights not only for investors holding non-tradable assets such as private equity but also for investors who do not have access to non-tradable assets. Investors who ignore the effect of non-tradable assets when reverse-engineering risk premia from asset covariances and market capitalizations might severely underestimate the equity risk premium.

The authors provide the first comprehensive analysis of the equilibrium effects of non-tradability of some assets on optimal policy portfolios. Thus, this paper goes beyond analyzing the effects of market imperfections on individual portfolio choices.

In real estate industry, managers' choices in portfolio construction impact directly on the performance of real estate fund. Looking at the literature, real estate diversification criteria are related to tenants' characteristics, to endogenous and exogenous risk and to financial choices. The aim of the paper is to study the role of different risk profiles in the investment selection and in the construction of an efficient real estate portfolio.

The first step is to find out an investment selection model based on the main risk factors. The aim was to check the ability of qualitative criteria (tenant, exogenous, endogenous and financial risks) to identify ex ante the best investment opportunities. The observation of the portfolios' composition on the efficient frontier and the proximity of individual property to the efficient frontier point out which risk factors are more important. The second step is to define a model to construct a portfolio, with non correlated investments, based on the main risk factors. This ability was tested by comparing the classifications made according to quality criteria, which can potentially be used ex ante to construct a diversified portfolio, with the results of cluster analysis. The results from the cluster analysis, free from quality profiles, are therefore considered as the best diversification strategy.

The results stemming from the use of a real estate database supplied by Fimit SGR (Unicredit banking group) showed that an ex ante study of risk profiles can help to identify those investment opportunities which are more or less near to the efficient frontier, although there is no prevailing criterion to identify a portfolio able to maximise investment diversification benefits. To identify more efficient portfolio is necessary to define an evaluation approach that considers simultaneously different risk profiles of real estate investments.

The paper considers the Italian market, a young market for institutional real estate investments characterised by high growing opportunities. The value added of the paper is to study the relationship of different real estate specific risks considered in literature (tenant risk, endogenous and exogenous risk) and financing choices in order to define a more complete model to evaluate real estate portfolios.

The purpose of this paper is to integrate land use and option pricing theories using case study analyses to compare a portfolio of uses comprising single and mixed‐use development on the same site and assess the effects on the risk‐return profile of potential development schemes. The integration of land use development based on highest and best use (HBU) is tested against a combination of uses on the selected sites at a point in time in the downswing of the real estate cycle.

The proposed methodology integrates the development valuation approach with option theory in which both consider the relationships of cost and value associated with alternative development options. The approach used in this paper addresses the broader consideration of project coordination inclusive of land use flexibility and opportunity costs endogenously associated with development strategies. By investigating the uncertainty of economic options specific to the development process, the methodology considers the significance of complementary components of strategic decisions and entrepreneurial effort within a return/risk management strategy.

The stochastic model when compared to the real option model enhances strategic decisions and development project management by allowing the consideration of single/mixed‐use alternatives. The development process is facilitated by the research findings whereby alternative uses are tested to maximise the potential use of the site. The analyses consider optimal funding strategies in developing and investing for a range of use options on regeneration sites.

The significant insights apparent from the research is the quantification of the strategic specification of development as a productive process and an investment endeavour. The proposed model enables a comparison of a HBU based on a single development, a mixed‐use development or a combination of uses as the difference between the scenarios impacts on land value and profit measures, especially where these measures are calculated as distributive residuals.

The stochastic model developed in this paper provides a value‐added contribution to real estate literature by considering the complexity of the interrelationships between urban land economics, land use theory, valuation appraisal methodologies, portfolio analysis and option pricing as applied in the development of regeneration schemes.

This paper aims to study low adoption of modern technology for pearl millet in Rajasthan, India, from the perspective of social networks. The state has the lowest adoption of modern pearl millet seeds among Indian states. . In particular, this paper tries to identify the limitations of channels with endogenous effects, thereby limiting large-scale adoption of modern varieties that would require social multipliers.

Defining the network/reference groups in terms of social identity and geographical proximity, this paper utilizes the intensity of interaction with different network nodes to identify the presence of endogenous effects. In particular, this paper uses the interaction of intensity of social exchange with the group level adoptions to establish the presence of endogenous effects. With adequate controls, greater intensity of interaction having a bearing on technology choice can only happen when there exists social learning (endogenous effect) and cannot be associated with other forms of social effects (namely, exogenous and correlated effects).

This paper finds evidence for the existence of endogenous social effects in adoption but largely from exclusionary channels. A comprehensively mapped network is used with its intensity to explain the extremely low rate of adoption. Only close-knit networks that, with social fragmentation, limit benefits to few, affect adoption significantly. The non-functionality of less exclusionary information sources and services can be a factor underlying low adoption.

The main limitation of the study is inability to control for unobserved individual heterogeneity because of the cross-sectional nature of data. Further, although an extensive mapping of individual networks has been done, it still cannot be guaranteed to be exhaustive.

With fragmentation, large-scale adoption programs would require networks, sources of information and services that are less exclusionary. Based on the survey data, media and non-religious organizations play a focal role here in the adoption of modern technology. This finding is extremely crucial for policy, as these channels comprise direct policy levers in a fragmented society like India. Indeed, several government programs in India have relied on these channels to run large-scale adoption programs. Their ineffectiveness could be a prime factor for such limited dissemination of technology in Rajasthan.

In different settings, social fragmentation could be an important factor determining technology adoption outcomes. The evolving consensus in the literature based on several studies is that ethnic fragmentation has potentially negative consequences on macro-economic performance (Alesina and Tabellini, 1989 and Collier, 2000). In the literature on technology adoption, the role of fractionalization is somewhat under-studied. With fragmentation, there can be significant micro-level impacts (for instance, low technology adoption of a crop) if channels that are inclusive are not well developed. The finding that channels like extension services, media or organizations are not effective in determining choice of technology does not mean that they should not be tapped. The empirical findings suggest that, in their current form in the state of Rajasthan, the roles played by these are limited. The policy implications would be to develop these systems in a way that there is a greater uptake. Recall that less than 4 per cent of the respondents got information on seeds from media sources, an extremely low number. There is certainly scope for increasing the outreach of these channels that are much more important for spread of agricultural technology in a fragmented society.

This paper is an attempt to come up with an empirical strategy to mitigate the issues related to reflection problem. In the cross-sectional data itself, we use the interaction of group choices with intensity of interaction within the group to introduce a non-linearity that tries to bypass the identification issues as in reflection problem. This method of introducing non-linearity in cross-sectional data is a novel attempt to achieve identification of endogenous effects.

In this paper we consider the effects of certain capital market imperfections on portfolio choice problems. We show that as a result of these imperfections, the distribution functions of rates of return may depend on portfolio allocation, thus leading to non‐convexities and consequently to patterns of specialisation rather than diversification.

We discuss recent developments in real options theory and its applications to strategic management research, examine the potential difficulties in implementing real options in theory and practice, and propose several areas for future research. Our review shows that real options theory has provided substantial insights into investment and exit decisions as well as into the choice of investment modes. In addition, extant research studies have contributed significantly to our understanding of whether and how organizations can benefit from real options. Future research that addresses difficulties in applications will further advance both real options theory and practice in strategic management. We call for future generations of research to enhance the impact of real options as an emerging dominant conceptual lens in strategic management.

We derive marginal conditions of optimality (i.e., Euler equations) for a general class of Dynamic Discrete Choice (DDC) structural models. These conditions can be used to estimate structural parameters in these models without having to solve for approximate value functions. This result extends to discrete choice models the GMM-Euler equation approach proposed by Hansen and Singleton (1982) for the estimation of dynamic continuous decision models. We first show that DDC models can be represented as models of continuous choice where the decision variable is a vector of choice probabilities. We then prove that the marginal conditions of optimality and the envelope conditions required to construct Euler equations are also satisfied in DDC models. The GMM estimation of these Euler equations avoids the curse of dimensionality associated to the computation of value functions and the explicit integration over the space of state variables. We present an empirical application and compare estimates using the GMM-Euler equations method with those from maximum likelihood and two-step methods.

Individuals tend to simplify a complex portfolio decision problem into several manageable dimensions, each of which can frame their perception of risk.We check this view by studying the effect of investment horizons on households’ portfolio decisions. Using the Survey of Consumer Finances (SCF) data, we find that households allocate more of their wealth in stocks if they report longer planning horizons. The existence of foreseeable expenditure significantly changes the dependence of risky stock investment on the planning horizon.We decompose the reported planning horizon into an objective part and a subjective mental accounting part, and find that the mental accounting part has a greater effect on household portfolio choice. This is consistent with the argument that individuals make investment decisions based on the horizon at which the risk is perceived rather than the horizon at which the investment reward or cash is needed.