Michael J. Seiler

Diversification Issues in Real Estate Investment

Real estate asset management has been and will continue to be a topic of great interest. Specifically, does real estate warrant inclusion in an efficient portfolio? And if so, how much should be invested in real estate? This article reviews the extant literature in the area of real estate diversification and helps identify the reasons that there exists so much divergence in the answer to the question, “How much in real estate?” Moreover, diversification as it relates to real estate is discussed in reference to both mixed-asset portfolios and for diversification within the real estate asset class. Directions for future research are also discussed.

Further Evidence on the Capital Structure of REITs

This study examines the determinants of real estate investment trust (REIT) capital structure decisions from 1990 to 2008. Using a broad sample of 2,409 firm-year observations, we find that asset tangibility is positively related to leverage, whereas profitability and market-to-book ratios are negatively related. Additional evidence suggests that firm debt capacity varies systematically with the unique operating and financing mechanisms employed by REITs. These results are robust across both aggregate firm debt levels and marginal security issuance decisions. Finally, our results provide further insight into competing capital structure theories, generally supporting empirical predictions derived from the market timing and trade-off theories, although failing to support pecking order theory predictions.

Modeling Travel Expenditures for Taiwanese Tourism

Abstract This study develops a travel expenditure model using sociodemographic and travel characteristics to identify the important determinants affecting travel expenditure for Taiwanese travelers visiting the United States. Stepwise regression is used to accurately interpret independent variables. LInear Structural RELations (LISREL) is used for analyzing the Structural Equation Model (SEM) that is fit to a sample (n = 1,097) of Taiwanese travelers using the variables from the stepwise regression as exogenous variables and expenditure and length of stay as endogenous variables. The overall model is found to be robust and individual relationships are found significant as well. The results of this study provide a first step in studying travel expenditure using sociodemographic and travel characteristics for the Taiwan travel market. Implications and recommendations for the travel and tourism industry are provided and suggestions for future research are made.

Fear, Shame and Guilt: Economic and Behavioral Motivations for Strategic Default

This study examines underwater primary resident homeowners to identify why some decide to strategically default while others do not. We find that realized shame and guilt are consistent with ex ante expectations. However, the financial backlash experienced by strategic defaulters is less than anticipated, causing strategic defaulters not to regret their actions. State‐specific bankruptcy exemption levels and real estate laws only marginally explain the decision to strategically default, partly because the decision to walk away from a mortgage is emotional, and partly because the implementation of these laws is uncertain and confusing to distressed borrowers. Rather, we find key strategic default drivers include the homeowners expectation of future real estate price movements, frustration with the lender, moral evaluation of the decision to strategically default, loan knowledge, political ideology, gender, income and age.

The political economy of green office buildings

Purpose – This paper aims to examine whether rental premiums accrue to environmentally certified class “A” office buildings and, further, to what extent such premiums vary with the political ideology of the local market area.Design/methodology/approach – Using standard ordinary least squares (OLS) regression techniques, the paper models rental rates on environmentally certified structures as a function of the space market characteristics, economic environment, and political ideology within each local market area.Findings – The paper finds significant variation in environmentally certified rental premiums across jurisdiction‐specific political ideology metrics. Specifically, politically liberal locations exhibit green rental premiums of nearly 6 percent, while politically conservative locations exhibit premiums of less than 2 percent.Originality/value – This paper expands the existing literature by offering further evidence of positive rental premiums accruing to environmental certification, and by systema...

Measuring Downside Portfolio Risk

Value at risk (VaR) is an approach used in risk management to measure downside risk. Not all VaRs, however, are created equal. Defining and accurately measuring market risk is a considerable task. VaR estimates depend on a number of inputs, including assumptions, data parameters, and methodology. Accordingly, comprehending the optimal use of various input and how they might impact the VaR forecast is necessary to avoid biasing portfolio risk estimates. The authors examine three equity portfolios of varying degrees of diversification, using twenty common VaR models developed through four VaR techniques to clearly demonstrate the ramifications of using inappropriate models. They find that particular characteristics of a portfolio must guide and determine which VaR model may be applied in order to extract accurate VaR estimates. Using the wrong VaR model will bias the behavior of portfolio managers and cause them to be exposed to much more risk than they desire.

Mental Accounting and False Reference Points in Real Estate Investment Decision Making

This study examines a number of behavioral finance issues as they relate to real estate investments. We find a statistically significant degree of mental accounting at all points throughout the disposition effect curve when holding a real estate investment in isolation versus holding the asset as part of a mixed-asset portfolio. We also identify four distinct disposition curve shapes beyond the traditional “S-shaped” curve, where investors are more willing to sell an asset that is in the gains domain. Furthermore, we conclude that an investors willingness to sell jumps by the greatest amount when going from zero return into profitable territory. Finally, this false reference point does take into consideration transaction costs.

The Role of Informational Uncertainty in the Decision to Strategically Default

This study identifies a severe gap between the financial backlash borrowers believe awaits them after strategic mortgage default and the reality that lenders rarely pursue deficiency judgments. This coupled with the social norm finding that borrowers widely view strategic default as immoral, leads us to recommend lenders and policymakers seeking to stem the tide of defaults to pursue a policy of informational opacity. We make several recommendations for how to carry out such a policy as well as what might need to change in society before the alternative policy of informational transparency becomes ideal.

Mitigating Investor Risk-Seeking Behavior in a Down Real Estate Market

Using an extension of the prospect theory known as false reference points, this study examines the behavior of real estate investors after experiencing a loss. The results confirm our central hypothesis that when investors attempt to avoid the pain of regret by changing the lens through which they view losses, they become more likely to hold onto bad investments. This unwillingness to sell bad investments in the short run causes investors to be more likely to experience heightened levels of unavoidable regret in the long run. The results hold across demographic characteristics but are slightly more pronounced for men and international investors, specifically those from Asia.

Forward and Falsely Induced Reverse Information Cascades

This study is the first to empirically test both forward and (falsely induced) reverse information cascades in an experimental setting using real-time instant feedback to participants. We find that, on average, individuals abandon their private information sets in favor of the groups as early as three steps and as late as five steps into the information discovery process. These findings are important to the fields of both finance and real estate in that we document a personality trait that causes individuals to be swayed from their independently chosen course of action. The results have ramifications for herding behavior and when modeling the spread of societys willingness to strategically default.