Dirk Brounen

Financial Literacy, Risk Aversion and Choice of Mortgage Type by Households

This paper analyzes how financial literacy and reported willingness to take financial risk impact a household’s choice of mortgage type. The results show that households reporting higher financial literacy and lower risk aversion are 55 to 97 percent more likely to opt for interest-only mortgages. The results are robust to alternative explanations such as the involvement of financial advisors, the effect of peers, experience with prior home-ownership, and house price expectations. In general, alternative mortgage products, as opposed to traditional mortgages, are chosen by wealthier, older, and more sophisticated households that are more likely to have a greater understanding of the risks and benefits associated with these products.

Short Sales and Fundamental Value: Explaining the REIT Premium to NAV

This study explores the role of short sale constraints in explaining the variation in premiums to Net Asset Value (NAV) in REIT pricing. We use proprietary information on short sales between June 2006 and September 2008 to examine how short sales and short sale constraints affect the variation in monthly REIT NAV premiums using panel vector autoregression models. We find that variation in short sale activity across individual REITs can account for at least one-third of the variation in NAV premiums. Short sale constraints tend to be binding when there is strong demand and limited supply of shares to short. Excess demand leads to overvaluation and the correction of the overvaluation explains the under-performance of premium REITs.

Energy efficiency and household behavior : The rebound effect in the residential sector

Over the years, various efficiency policies have been designed and implemented to reduce residential energy consumption. However, it is very common that the policy expectations that are based upon engineering calculations do not come true. The widely accepted explanation for the gap between expectation and the realization is the change of household behavior, as the energy efficiency gains change the perceived cost of energy services and thereby generate shifts in consumption patterns – the rebound effect. The real controversy about the rebound effect lies in the identification of its magnitude. In this paper, we estimate the rebound effect in residential energy consumption by comparing the actual gas consumption levels with the ex-ante predictions within a sample of well over 600,000 Dutch dwellings and households. We find a significant deviation between the engineering predictions and the households’ actual energy consumption, a difference which varies by ownership, wealth, income and the actual gas use intensity. Our results show a rebound effect of 26.7 percent among home-owners, and 41.3 percent among tenants. Moreover, we find that these effects are greatest among the lower income-wealth groups, and among households that tend to use more gas than average.

Price Signaling and Return Chasing: International Evidence from Maturing REIT Markets: Price Signaling and Return Chasing

This article examines the liquidity of international real estate securities across 10 markets over the period 1990–2015. We apply and compare results for four different measures of liquidity, and find that while liquidity has increased consistently, wide variations still exist across markets, with the United States and Japan in the lead. Our results also suggest that the introduction of local REIT regimes did not have any pervasive effects on stock liquidity. When we study the relationship between liquidity and returns, we document new and consistent evidence for international return chasing behavior, whose pattern is a function of local market efficiency, listed real estate market maturity and stock ownership dispersion. The introduction of REIT regimes seems to weaken the importance of extra performance over and above general equity returns as investors tend to allocate funds to real estate securities within real estate rather than equity portfolios.

Developing Benelux REITs

The REIT regime has had a good home in the Benelux, albeit at different paces and varying scales. In 1969 the Dutch government was second after the U.S. to adopt a REIT-like structure to promote real estate investments, and has successfully done so thereafter. In Belgium the REIT structure was introduced in 1995, and has since fuelled a listed real estate market that today represents a market capitalization of seven billion euro’s scattered over 11 different listed firms. For the Lux part of this Benelux introduction the numbers are less compelling. Although Luxembourg has always been a good home for tax efficient investments, real Luxembourg REITs are yet to come.