Alan K. Reichert

The Impact of Interest Rates, Income, and Employment upon Regional Housing Prices

The objective of this article is to identify important differences in the way new housing prices react to local and national economic factors. The study finds that regional housing prices react uniformly to certain national economic factors, such as mortgage rates. On the other hand, local factors such as population shifts, employment, and income trends often have a unique impact on housing prices. The study rejects the hypothesis of a single national housing market in favor of one that allows for broad national trends to be superimposed upon unique regional markets.

An Empirical Analysis of Hedonic Regression and Grid-Adjustment Techniques in Real Estate Appraisal

Multiple regression analysis has become increasingly popular when appraising residential properties for tax purposes. Alternatively, most fee appraisers and real estate brokers use the traditional sales comparison approach. This study combines the two techniques and uses multiple regression to generate the adjustment coefficients used in the grid adjustment method. The study compares the combined grid-regression method with ordinary regression and defines the market conditions under which each method is likely to be more effective. The grid-regression method is found to be more accurate for relatively homogeneous housing markets, and the multiplicative percentage adjustment method (MPAM) the preferred approach. Copyright American Real Estate and Urban Economics Association.

Derivative activities and the risk of international banks: A market index and VaR approach

Abstract The results of a comparison of international banks using a three-factor multi-index model and a modified value-at-risk (VaR) analysis indicate that the use of options increases the interest rate beta for all banks, while both interest rate and currency swaps generally reduce risk. The results are the strongest and the most consistent for U.S. dealer banks, followed by European banks, and then Japanese banks. Furthermore, the evidence suggests that the VaR approach to risk management can effectively be used by both domestic as well as international banks, although the results appear to be somewhat sensitive to the regulatory environment in which the bank operates.

The risk of foreign currency contingent claims at US commercial banks

This study investigates the relationship between market-based measures of risk and foreign currency contingent claims activity at US commercial banks. Specifically, four types of foreign currency contingent claims are examined: purchased foreign currency option contracts, foreign-exchange swaps, commitments to purchase foreign currency and forward contracts. Within the context of the Comptroller of the Currency’s (OCC’s) Banking Circular 277, we diAerentiate between the risk exposure of dealer banks and non-dealer banks. Empirical results suggest that (i) the use of options tends to increase all market-based measures of bank risk, (ii) swaps are used primarily for risk-control purposes and (iii) the use of forward contracts and currency commitments contributes mildly, if at all, to any type of risk. There is some evidence that swaps activity at dealer banks increases unsystematic risk. Otherwise, dealer and non-dealer banks appear to similarly manage foreign currency risk. ” 2000 Elsevier Science B.V. All rights reserved. JEL classification: G21

The impact of banks and non-bank financial institutions on economic growth

Empirical studies examining the relationship between financial sector development and economic growth without including non-bank financial institutions (NBFIs) will likely generate biased empirical results. This study provides evidence that NBFIs can have a statistically significant negative impact on economic growth using cross-country data for both emerging and advanced countries. This finding suggests that these non-bank institutions, often loosely regulated, may introduce an excessive level of risk into the financial sector and the general economy. It is consistent with the current global financial crises where NBFIs, such as investment banks and insurance companies, introduced an excessive level of risk into the global economy. Hence, policy-makers may need to consider more timely and effective regulation of NBFIs and insure that adequate transparency and disclosure is provided to all financial markets participants.

Time variation paths of factors affecting financial institutions and stock returns

This study finds evidence that three risk factors relating to the stock market, bond market, and real estate market are important in explaining the risk premiums included in financial institutions and bank stock returns. Stock returns for insurance companies are not sensitive to changes in the bond market. The Flexible Least Squares (FLS) results indicate that the stock market factor has the most important and stable impact on risk premiums for financial institutions, banks, and insurance companies. The bond market is the primary source of instability in stock returns for these three groups of stocks. This research adds further support for using market discipline, especially as it relates to equity returns to enhance the prudential regulation of the financial sector.

The determinants of derivative use by U.S. and foreign banks

The study examines the financial and regulatory factors that influenced the extent of derivative activity at twenty-five large international dealer banks during the 1995–1997 period. The findings indicate that their derivative activity is directly related to the size of the banks capital ratio, asset size, maturity gap, and credit rating, but inversely related to bank profitability. The greater the opportunity for commercial banks to pursue investment banking activities the less incentive they have to expand their level of derivative activity. Banks that are allowed to make direct investment in industrial firms appear to have more opportunities to cross-sell various types of derivatives, such as swaps.

Environmental and Brownfield Liability: Relative Influence on Corporate Expansion and Relocation

Many states in America have enacted laws to encourage the development of contaminated properties. The laws attempt to do this by addressing one barrier to redevelopment, the environmental liability attached to contaminated properties. In general, the laws attempt to remove or reduce the significance of that barrier by reducing or eliminating the environmental liability risk attached to these properties. Our hypothesis was that these efforts cannot significantly encourage redevelopment because they fail to address non-environmental barriers to urban redevelopment. To determine whether this legislative focus on environmental liability is misplaced, we conducted a survey of Northeast Ohio businesses, which had decided, since the enactment of Ohios brownfields law, either to move to a new location, or expand at an existing location. The survey asked businesses to rank the relative importance to their relocation decision of environmental and non-environmental factors. The results of the survey show that numerous non-environmental factors were of equal or greater importance to the decision-maker than the environmental status of the property. Therefore, legislative efforts to encourage redevelopment of contaminated urban properties must be expanded to include non-environmental barriers to redevelopment.

Information Disclosure, Bank Performance and Bank Stability

The purpose of this research is to identify the effects of information disclosure on commercial bank performance and stability. Specifically, the study examines the relationship between different levels of information disclosure and the subsequent impact on various measures of bank return and risk. The focus is on securitised assets and credit derivative activities, both of which were at the heart of the sub-prime mortgage crisis of 2008. Using a sample of 27 US bank holding companies (BHCs) for the period from June 2001 to December 2008, a significant relationship between the quantity and quality of information disclosure and bank performance and stability is observed. A ‘switching’ behaviour is identified, whereby performance and stability initially decrease and then improve when additional information on a bank’s securitisation and credit derivative activities are disclosed. This switching effect is possibly explained by economies-of-scale and a ‘learning curve’ effect. The results provide guidance for managing both the volume and quality of information disclosed by both bank managers and the regulatory authorities.

Hedonic Modeling in Real Estate Appraisal: The Case of Environmental Damages Assessment

The literature regarding the use of hedonic pricing models in the real estate appraisal field is quite extensive (Freeman, 1979; Epple, 1987; Palmquist, 1992). While empirical studies using hedonic regression date back to the 1960’s, in 1974 Rosen published the seminal article regarding the theory which underlies hedonic pricing models.1 Over the years hedonic modeling has been applied to estimating the value of a wide range of economic and social amenities such as the value of nearby golf courses, properties with ocean views, and the impact of resort communities (Do and Grudnitski, 1995; Spahr and Sunderman, 1999; Rush and Bruggink, 2000) and dis-amenities such as proximity to landfills and environmental pollution (Harrison and Rubinfield, 1978; Li and Brown, 1980; Reichert, 1991).