Mauricio Rodriguez

Modeling Spatial and Temporal House Price Patterns: A Comparison of Four Models

This research reports results from a competition on modeling spatial and temporal components of house prices. A large, well-documented database was prepared and made available to anyone wishing to join the competition. To prevent data snooping, out-of-sample observations were withheld; they were deposited with one individual who did not enter the competition, but had the responsibility of calculating out-of-sample statistics for results submitted by the others. The competition turned into a cooperative effort, resulting in enhancements to previous methods including: a localized version of Dubin’s kriging model, a kriging version of Clapp’s local regression model, and a local application of Case’s earlier work on dividing a geographic housing market into districts. The results indicate the importance of nearest neighbor transactions for out-of-sample predictions: spatial trend analysis and census tract variables do not perform nearly as well as neighboring residuals.

Robustness of Size and Value Effects in Emerging Equity Markets, 1985-2000

We examine the robustness of size and book-to-market effects in 35 emerging equity markets during 1985-2000. Book-to-market effects are significant and are robust to tests accounting for non-normality and for firm size effects, and they do not depend on extreme returns. Size effects are also present but do not have the robustness found for book-to-market results. Book-to-market effects are found within size portfolios, but size effects are not found within book-to-market portfolios. Significant size results are produced by extreme returns. Moreover, size effects are found when size is measured relative to the local market but not in tests using absolute firm size. Cross-sectional regressions controlling for global and local systematic risk confirm the findings.

A Complete Nonparametric Event Study Approach

Event studies have been used to examine the direction, magnitude, and speed of security price reactions to various phenomenon. Concerns over the lack of normality in stock return distributions motivated the introduction of nonparametric test statistics in the event study literature. A parametric procedure (OLS), however, has been extensively employed in the estimation of parameters for the market model. This paper, in contrast, applies Theils nonparametric regression in the estimation of abnormal returns; an approach which is distribution free and provides a complete nonparametric approach for the detection of abnormal performance. Simulation results indicate Theils estimation procedure offers a slight improvement in power in the detection of abnormal performance over the traditionally employed methodology. The results suggest employing Theils nonparametric estimation procedure combined with the rank statistic. This complete nonparametric combination offers similar power with fewer underlying assumptions.

Residential Land Values and the Decentralization of Jobs

The land-value surface in suburban Washington, D.C., changed dramatically over the decade of the 1980s. This article explains these changes in terms of the decentralization of jobs versus socioeconomic trends. Contemporaneous correlation among selected variables needs to be controlled with reduced forms and SES techniques. But all explanatory variables except distance from some unchanged point are determined simultaneously. Predetermined variables control for this double-endogeneity issue.Land values in 1990 have a U-shape with respect to distance from the U.S. Capitol Building after controlling for other variables. The data indicate that this is the result of demographic changes rather than the development of suburban employment nodes: polycentric SUE theory is rejected. Land values are an increasing function of lagged land values, a decreasing function of work at home. Moreover, work at home is attracted by low structural density and high socioeconomic status as well as low land values. This supports the argument that demographics and technological innovations have shaped the land-value surface; baby boomers are seeking low-density housing for work and family life.

Differentiating CREF Performance

We examine factors underlying the differences in commingled real estate fund (CREF) performance using a sample of 65 CREFs during 1985-2002. More than half of the individual CREFs underperformed the employed benchmark. However, portfolios of CREFs performed well in both up and down markets, smaller CREFs outperformed larger CREFs, and top performing CREFs continued to outperform. Differential CREF performance appears to be attributable to property selection, rather than allocation across real estate sectors. Liquidity-constrained CREFs exhibited lower risk. CREFs with large benchmark tracking error experienced inferior performance. These findings indicate important cross-sectional differences among CREFs and diversification opportunities for pensions employing multiple CREF investment strategies. Copyright 2006 American Real Estate and Urban Economics Association

Risk and Return Characteristics of Property Indices in Emerging Markets

We examine the investment performance and diversification benefits of real estate investments in emerging capital markets using property indices, and we contrast the risk and return characteristics of those property indices with the broader equity markets in those countries and with real estate and broader equity investments in developed markets. Real estate indices experienced relatively high total risk and low returns, but only a few of these indices underperformed on a risk-adjusted basis. Despite lackluster performance, real estate investments in emerging markets offered diversification opportunities to equity market investors in emerging markets as well as to real estate and equity market investors in developed markets. Policy makers in some countries support restrictions that limit investments abroad. These legislators should recognize that there is a tradeoff between potential benefits from keeping capital in their domestic markets versus reductions in diversification benefits available to their constituents.