Daxuan Zhao

Foreign liquidity to real estate market: : Ripple effect and housing price dynamics

Globalisation enables foreign liquidity to access local property markets. This paper depicts a strong connection between foreigners’ property acquisitions and regional housing price movements in Singapore. Testing structure breaks also illustrates a ripple effect of prices from the central city to suburbs. A structural vector autoregression incorporates these two observations. Impulse-response function and forecast-error variance decomposition show that central region’s foreign-liquidity shocks can greatly impact housing price growth in not only the central region but also the non-central region where foreign buyers are inactive. The ripple effect of prices plays an important role. Non-central region’s foreign-liquidity shocks, in contrast, have small effects on both regions. Impacts of foreign-liquidity shocks can reach the public-housing market, where foreigners’ participation is prohibited. The findings are useful to policy makers who consider regulations of foreign home buyers as an instrument to stabilise housing markets.

Risk Attitude and Housing Wealth Effect

This paper examines whether the housing wealth effect—the consumption change induced by house price appreciation is dependent upon households’ attitudes toward risk. A simple theoretical model is introduced to highlight a negative relationship between the wealth effect and risk aversion. The paper empirically tests for this negative relationship, using data from the U.S. Consumer Expenditure Survey. The investigation involves two steps. In the first step, we make use of households’ demographics and their risky and liquid asset holdings to estimate risk aversion. The Heckman correction model is applied to address the issue of limited stock market participation. For the second step, we construct pseudo panel data through grouping households by their birth years and their predicted values of risk aversion, and then, we estimate the responses of households’ consumption changes to house price fluctuations by risk-attitude group. Consistent with the prediction of the theoretical model, the estimation results suggest a significant negative relationship between the housing wealth effect and households’ risk attitudes. Households, who are less risk averse, experience greater consumption changes in response to house price appreciation. Copyright Springer Science+Business Media New York 2014

Corporate Real Estate Ownership and Productivity Uncertainty

This article empirically tests the relationship between corporate real estate (CRE) holdings and productivity risks of firms. Using a large sample of public listed U.S. firms for the period from 1984 to 2011, we show that CRE ownership is significantly and negatively correlated with productivity risks of firms. Firms with high‐productivity risk own less CRE assets. When testing dynamic changes to CRE holdings, we estimate a significant and positive elasticity of CRE investments of 5.2% in response to cash flow shocks. If the adjustment cost is high, high‐risk firms are expected to hold less CRE assets, so that they could reduce potential losses associated with CRE holdings when negative productive shocks occur.

Entropy Based Modelling for Estimating Demographic Trends.

In this paper, an entropy-based method is proposed to forecast the demographical changes of countries. We formulate the estimation of future demographical profiles as a constrained optimization problem, anchored on the empirically validated assumption that the entropy of age distribution is increasing in time. The procedure of the proposed method involves three stages, namely: 1) Prediction of the age distribution of a country’s population based on an “age-structured population model”; 2) Estimation the age distribution of each individual household size with an entropy-based formulation based on an “individual household size model”; and 3) Estimation the number of each household size based on a “total household size model”. The last stage is achieved by projecting the age distribution of the country’s population (obtained in stage 1) onto the age distributions of individual household sizes (obtained in stage 2). The effectiveness of the proposed method is demonstrated by feeding real world data, and it is general and versatile enough to be extended to other time dependent demographic variables.

Urban Inclusiveness and Income Inequality in China

The issue of income inequality is exacerbating when China experiences the rapid economic growth during the past few decades. This paper argues that urban inclusiveness is one of the determinants of income inequality in Chinese cities, because the Hukou system restricts public service to Hukou-registered workers only. The impact of urban inclusiveness on income inequality and the underlying mechanism are discovered by examining how Hukou restriction affects income gap between skilled and unskilled workers and how the preferences on public services and urban inclusiveness vary across skilled and unskilled workers. With the 2005 Inter-Census Population Survey, we find skilled workers care more about public services and urban inclusiveness, so skilled workers are relatively scarce in exclusive cities, who hence can enjoy a higher skill premium, leading to a higher income inequality in exclusive cities.

The Selection and Quantile Treatment Effects on the Economic Returns of Green Buildings

Global warming changes societal values and political climate. The movement toward environmental sustainability and initiatives of green-building certification have created an implicit mark for sustainable buildings. Whether the economic return adequately incentivizes developers is an important question for research, because the building sector is a primary source of greenhouse gas emissions and many countries have ratified international treaties and committed to reduce emissions. This paper uses Singapore housing data and examines the green building premium. It carefully handles the issue of selection to treatment. Specifically, propensity score methods, which include the propensity score matching and inverse probability weighting, address selection on observables and remove confounding. The quality of these remedial methods are assessed through comparison between unconditional and conditional average treatment effects. Inverse probability weighting performs better than matching in this research. The paper further extends the literature of green building from the examination of the average treatment effect to the study of the quantile treatment effects. Both the conditional and unconditional quantile treatment effects are estimated and analyzed. Economic returns are significant but vary considerably along the conditional and unconditional distributions of housing prices. Policy implications are discussed.

Impact of Foreclosure Laws on Mortgage Loan Supply and Performance

This paper measures the impact of three types of defaulter-friendly foreclosure laws on the behaviors of mortgage lenders in loan origination, and borrowers in default decision. To disentangle the “pure�? influence of foreclosure laws from that of unobserved regional factors, we use the border identification strategy to sort the loan sample in the zip codes on both sides of a border dividing states by the foreclosure laws adopted. Unlike the previous research, we find no conclusive evidence on the causal effects of foreclosure laws on loan supply and default risk. The empirical results are highly sensitive to fixed effect specifications, time period, and sample selection.

Corporate Governance and Real Estate Collateral Effect

The collateral channel literature predicts that firms owning more real estate use more debt when real estate prices increase. We show that the positive collateral-investment relationship is enhanced with the corporate governance of firms. Firms’ choice of debt over equity in their capital structure decisions is dependent on anti-takeover threats facing managers. During the real estate booms from 1993 to 2006, firms with strong corporate governance are more likely to increase debt capacity via the collateral channel. Entrenched managers use less debt to finance their investments when their real estate collateral values increase. Our results hold after controlling for non-collateral debts and credit rating of sample firms.