Gianluca Mattarocci

The Day of the Week Effect

The return distribution of any security does not necessarily have to be equal for all the days of the week and the assumption of the absence of any recurrent trend on some days of the week is only a simplified statistical assumption that is not required, even in a market equilibrium scenario (Gibbons and Hess, 1981).

LIQUIDITY RISK EXPOSURE FOR SPECIALIZED AND UNSPECIALIZED REAL ESTATE BANKS: EVIDENCES FROM THE ITALIAN MARKET

Purpose – The purpose of this paper is to compare banks specialised on real estate lending with the overall market in order to the test if they are more or less exposed to liquidity risk.Design/methodology/approach – Following the approach proposed by the Basel Committee in order to evaluate the bank liquidity exposure, the paper compares the value of these measures between the real estate lending banks (REBs) and all other banks for the Italian market. A panel regression analysis is also performed in order to identify the main drivers of the liquidity risk measures for the two types of banks.Findings – The paper finds that no significant differences exist between REBs and the overall system if liquidity risk measures used by regulators in order to supervise the banking system are taken into account. Normally liquidity exposure by this type of bank is significantly affected by interbank market dynamics.Research limitations/implications – The paper considers only one market in order to test the fitness of ...Liquidity is the ability of a bank to collect money necessary for financing assets and meet obligations as they come due, without incurring unsustainable losses; the maturity transformation of short-term deposits into long-term loans makes banks inherently vulnerable to liquidity risk (Basel Committee on Banking Supervision, 2008). As banks specialized on real estate finance show an average high duration of the assets (Booth, 2002), liquidity risk is extremely relevant to ensure the stability of the financial intermediary. Under an asset and liabilities management approach (ALM), the paper is aimed to analyze the impact of the maturities structure on the liquidity position, discriminating between residential property specialized lenders and others. Yearly and half-yearly balance sheet data are collected from the ABI Banking Data database over the period 2000-2008. Data attain the individual balance sheet and all consolidated balance sheets are excluded from the analysis. In order to construct a sample that is representative of the Italian market, all banks available in each semester are selected independently from number of semesters for which the data are available The asset / liability structure analysis considers the banking book of each bank and computes, for each semester, measures of the liquidity risk exposure as: contractual maturity mismatch (Drago, 2003); concentration on funding (Matz and Neu, 2007); available unencumbered assets (Resti and Sironi, 2007). The sample is classified on the basis of the percentage of residential loan exposures on the total assets using a threshold the 40% per cent (Eisenbeis and Kwast, 1991). Total active banks are stratified in three groups according to the number of years in which they could be classified as specialized real estate banks (Blasko and Sinkey, 2006). A comparison of ALM measures for different subsamples is released in order to evaluate if the choice to specialize in the real estate sector affect the exposure at risk of the bank Results obtained will show that misalignment between asset and liability structure affects the liquidity position of the bank. The borroweris business sector and characteristics affect the bankis liquidity risk exposure. Banks that are structurally more exposed are those that are specialized in the real estate sectors. Empirical evidence provided demonstrates that the current debate on the need to define asset/liability maturity regulatory constraints could have relevant implication for the Italian banking sector, especially for the banks involved in the property market.

Liquidity risk exposure for specialised and unspecialised real estate banks: Evidence from the Italian market

Purpose – The purpose of this paper is to compare banks specialised on real estate lending with the overall market in order to the test if they are more or less exposed to liquidity risk.Design/methodology/approach – Following the approach proposed by the Basel Committee in order to evaluate the bank liquidity exposure, the paper compares the value of these measures between the real estate lending banks (REBs) and all other banks for the Italian market. A panel regression analysis is also performed in order to identify the main drivers of the liquidity risk measures for the two types of banks.Findings – The paper finds that no significant differences exist between REBs and the overall system if liquidity risk measures used by regulators in order to supervise the banking system are taken into account. Normally liquidity exposure by this type of bank is significantly affected by interbank market dynamics.Research limitations/implications – The paper considers only one market in order to test the fitness of ...Liquidity is the ability of a bank to collect money necessary for financing assets and meet obligations as they come due, without incurring unsustainable losses; the maturity transformation of short-term deposits into long-term loans makes banks inherently vulnerable to liquidity risk (Basel Committee on Banking Supervision, 2008). As banks specialized on real estate finance show an average high duration of the assets (Booth, 2002), liquidity risk is extremely relevant to ensure the stability of the financial intermediary. Under an asset and liabilities management approach (ALM), the paper is aimed to analyze the impact of the maturities structure on the liquidity position, discriminating between residential property specialized lenders and others. Yearly and half-yearly balance sheet data are collected from the ABI Banking Data database over the period 2000-2008. Data attain the individual balance sheet and all consolidated balance sheets are excluded from the analysis. In order to construct a sample that is representative of the Italian market, all banks available in each semester are selected independently from number of semesters for which the data are available The asset / liability structure analysis considers the banking book of each bank and computes, for each semester, measures of the liquidity risk exposure as: contractual maturity mismatch (Drago, 2003); concentration on funding (Matz and Neu, 2007); available unencumbered assets (Resti and Sironi, 2007). The sample is classified on the basis of the percentage of residential loan exposures on the total assets using a threshold the 40% per cent (Eisenbeis and Kwast, 1991). Total active banks are stratified in three groups according to the number of years in which they could be classified as specialized real estate banks (Blasko and Sinkey, 2006). A comparison of ALM measures for different subsamples is released in order to evaluate if the choice to specialize in the real estate sector affect the exposure at risk of the bank Results obtained will show that misalignment between asset and liability structure affects the liquidity position of the bank. The borroweris business sector and characteristics affect the bankis liquidity risk exposure. Banks that are structurally more exposed are those that are specialized in the real estate sectors. Empirical evidence provided demonstrates that the current debate on the need to define asset/liability maturity regulatory constraints could have relevant implication for the Italian banking sector, especially for the banks involved in the property market.

How to evaluate risk for Italian real estate funds

Purpose – The purpose of this paper is to define an approach useful to evaluate real estate funds on the specific characteristics of the Italian market and on the basis of international best practices.Design/methodology/approach – The first step is to identify specific factors and portfolio construction choices that could impact directly on the variability of inflows and outflows related to real estate fund. The analysis is realised constructing standard measures of financial and downside risk and identifying a panel model that allows to explain risk measure dynamics on the basis of some investments and portfolio characteristics. Results obtained are tested with an out of sample procedure in order to evaluate the type of misclassification risk related to each model. The second step is to evaluate the impact of debt policy on the risk assumed by a real estate funds. After an analysis of debt sustainability for each real estate unit on the basis of deadlines and amount of flows related to each investment, t...

The role of portfolio diversification in the hotel industry: Evidence from the Italian market

Purpose – The purpose of this paper is to study whether geographic and sector diversification allow for a significant reduction in the risk exposure of a portfolio of hotel investments in one of the major tourist markets, the Italian market.Design/methodology/approach – This paper evaluates the benefits related to a Markowitz diversification approach for the construction of a specialised portfolio in the hotel real estate market. The portfolio analysis considers the degree of efficiency of each portfolio, the type of diversification adopted by a more efficient portfolio, the persistence of results over time and the impact of diversification constraints.Findings – The results demonstrate that, while standard geographic and sector diversification allow for good results, the more efficient portfolios are more concentrated. The trade‐off is worse if some concentration constraints are established, but the portfolios identified are characterised by higher performance persistence.Research limitations/implication...

The relative importance of sector and regional factors in the hotel industry

Purpose - The purpose of the paper is to compare the role of the sector and geographical features in explaining the performance of a hotel structure. Design methodology/approach - The paper constructs a measure of net profit for available room (GOPPAR) for a representative sample of Italian hotels and uses a constrained linear regression model in order to identify the role of sectoral and geographical features. The analysis is released adopting a multiple cross sectional approach and considering not only the average role of sectoral and geographic characteristic, but also the time trend of relation inspected. Findings - Results obtained show that the overall national trend is not significant for explaining the performance of each hotel. Considering geographical and sectoral features, the first of these explain better the disalignment of the performance respect to the national average. Research limitations/implications - The paper proposes an analysis of the hotel industry using a standard geo-sectoral classification. More data about the characteristics of the firms considered in the sample could allow to define a more detailed model that consider also other hotel features that could impact on the demand and supply of the service. Practical implications - Results could be useful for the hotel chains and for institutional investors specialized in the hotel sector, in order to define a first guideline for the property selection process and diversification portfolio strategy. Originality/value - The paper represents the first work that analyse the role of regional and sectoral factors in explaining the performance of the hotel industry and supports the thesis proposed with and empirical evidence on world leading market (Italy).

THE ROLE OF RISK MEASURESí CHOICES IN RANKING REAL ESTATE FUNDS: EVIDENCE FROM THE ITALIAN MARKET

Real estate industry is a fast growing reality in all European Countries and during the last years also Italian market shows a significant increase in the number of real estate funds available not only for institutional investors. The increasing role of retail investors in the industry makes necessary to study simple return/risk measures that could be easily understood also by not financial skilled investors. Measures frequently used in the asset management industry are the Risk Adjusted Performance Measures scale independent. Studies available in literature evaluate the fitness of these measures in order to select best investment opportunities under the simplified assumption of the normality of results achieved. Looking at the Italian market, the paper studies the performance of Real Estate Funds traded in the Italian market for the time period 1999-2009 and verifies that the assumption of the normality of results is not coherent. Demonstrated the limits of this assumption, the paper compare ranking based on Sharpe ratio with those achieved using different RAP measure constructed using different risk measures. Results obtained demonstrate that rankings obtained are not strictly correlated and measures that do not assume the normality of returns identify rakings that are more stable over time.

Are Home-Biased REITs worthwhile?

Due to the unique features of each real estate investment opportunity, real es- tate investment trust (REIT) asset managers gen- erally prefer to focus on domestic investments, for which they have more available information. While there is evidence of this trend in the U.S. market, there is little evidence in the rest of the world. In this paper, we examine a sample of geographically diversified REITs, focusing on the degree of home bias in different countries and compare the extra performance achieved by home- biased and non-home-biased REITs. The results show that home bias is more significant for certain countries and geographical areas and that home country portfolio concentration does not always imply higher average returns or a higher probabil- ity of return persistence.

Optimal Asset Allocation for European Real Estate

The Markowitz theory (Markowitz, 1952) is the standard framework considered in the asset management industry, and the literature has already evaluated the usefulness of these approaches for the real estate industry. Due to the lack of normality of returns, the mean-variance approach used in the Modern Portfolio theory does not work properly in the real estate industry (Cheng and Liang, 2009), and optimal portfolios constructed on the mean-variance framework frequently are suboptimal with respect to other solutions available (Byrne and Lee, 1997).

Choice of risk measure in evaluating UCITS funds of hedge funds

‘Undertakings for Collective Investment in Transferable Securities’ (UCITS) funds of hedge funds (FoHFs) are a fast-growing investment opportunity because of their distinctive characteristics with respect to other financial instruments. Constraints applied on UCITS FoHFs investment selection can affect performance and risk, and make these instruments different with respect to other FoHFs. The hedge fund literature has thoroughly analyzed risk-adjusted performance (RAP) measures to determine the limits of the assumption of normality in evaluating such investment opportunities. While new RAP measures have been proposed to overcome these limits, no such empirical evidence exists for UCITS FoHFs. This chapter evaluates the relevance of the choice of risk measure in selecting the best investment opportunities among a set of UCITS FoHFs for the period 2003–2011. The results demonstrate that, even if the rankings according to different RAP measures are correlated, RAP measures that remove the assumption of a normal return distribution may increase the persistence of the results and an investments selection process based on such measures may lead to better performance, even during the global financial crisis.