Randy I. Anderson

Another Look at the Efficiency of Corporate Travel Management Departments

In response to escalating business travel costs, many firms have formed corporate travel management departments to help control these expenses. This study examines how efficiently these departments are operating by employing a stochastic frontier technique in addition to a linear programming procedure. Both of these methods construct efficient frontiers that represent the minimum costs that need to be allocated to corporate travel given the number of trips that firms take. Any costs incurred beyond the efficient frontiers are deemed excess, and the firms are classified as inefficient. The results using both procedures indicate that the corporate travel management departments are relatively efficient. In a competitive market, it is expected that more firms will begin to use in-house travel management departments to help control the rise of travel-related expenses.

Technical efficiency and economies of scale: A non-parametric analysis of REIT operating efficiency

Abstract This study measures technical efficiency and economies of scale for real estate investment trusts (REITs) by employing data envelopment analysis (DEA), a linear-programming technique. Using data from the National Association of Real Estate Investment Trusts (NAREITs) for the years 1992–1996, we find that REITs are technically inefficient, and the inefficiencies are a result of both poor input utilization and failure to operate at constant returns to scale. With respect to scale inefficiency, most REITs are operating at increasing returns to scale, suggesting that REITs could improve performance through expansion. Moreover, we employ regression analysis to determine what characteristics influence the efficiency measures obtained. The results show that internal REIT management is positively related to all measures of efficiency. Increasing leverage is negatively related to REIT input utilization. Finally, increasing REIT diversification across property types enhances scale efficiency (SE) but reduces input usage efficiency.

Does Corporate Diversification Reduce Firm Risk? Evidence from Diversifying Acquisitions

The main purpose of this paper is to investigate empirically whether corporate diversification reduces the risk of the diversifying firm. We investigate this issue using a sample of diversifying acquisitions and various risk measures. We find that corporate diversification tends to decrease the risk of some firms but increase the risk of many others. On average corporate diversification does not lower firm risk. These findings call into question the notion that corporate diversification strictly reduces firm risk.

Should Tracking Error Prevent the Use of Leveraged ETFs in the Real Estate Portfolio

Tracking error is the deviation of a leveraged exchangetraded fund’s (ETF’s) return from the stated multiple of its benchmark index. Leveraged real estate and real estate–related ETFs, both long and inverse, are valuable tools for hedging risk and enhancing returns in the real estate portfolio. They enable the achievement of such results through timely, simple transactions that previously could be realized only through the use of complex trading tools. Tracking error poses a serious risk in the use of these leveraged ETFs, however. The issuers and regulators of leveraged ETFs warn that the returns to these funds over a period longer than one day will very likely differ from the fund’s target return. Academic researchers further warn that annual leveraged ETF returns fall well short of their stated daily objectives and, under volatile conditions in the benchmark index, can lead to eventual value destruction. The results of this research confirm the appropriate concern for caution in using leveraged ETFs. Naïve buy-and-hold investment in leveraged real estate ETFs can result in value destruction. Nevertheless, balancing the advantages of leveraged ETFs with the risks, we conclude that the tracking error associated with using leveraged ETFs beyond a single trading day should not prevent investment managers from using these ETFs in real estate portfolios. To be sure, leveraged ETFs are valuable tools for use in hedging risk and enhancing returns and, under appropriate circumstances, with great care and frequent monitoring, can be judiciously employed for longer than a single trading day by skilled traders and well-informed portfolio managers.

Stock Price Volatility of Banks and Other FinancialsEmanating from the Inception ofLeveraged, Inverse, and Traditional ETFs

Changes in stock price volatility of banks and other financials resulting from the inception of the first-ever, leveraged, inverse and traditional, purely financial exchange-traded funds (ETFs) are investigated. Financials have become much more accessible to investors through these creative and increasingly popular ETF securities. Results from using a constant-variance, first-order, Markov regime-switching model show a significant increase in the volatility of banks and other financials following the introduction of XLF, the traditional ETF representing the Financial Select Sector SPDR, and the leveraged (long and inverse) ETFs, UYG and SKF, benchmarked to the Dow Jones U.S. Financials Index. Volatility emanating from the inception of the leveraged ETFs was several orders of magnitude greater than that of the traditional ETF. Banking and large-cap financials were most prominently affected by the XLF. All sectors and size categories of financial firms were significantly impacted by UYG and SKF, the leveraged ETFs.

On the Use of Leveraged-Inverse ETFs to Hedge Risk in Publicly Traded Mortgage Portfolios

The authors evaluate U.S. Treasury and real estate indexed leveraged-inverse exchanged traded funds (LIETFs), mortgage-based put options, and real estate futures as risk hedges in publicly traded mortgage portfolios under conditions of large and rapid interest rate increases. They find that two LIETFs, TBT and TTT, indexed to U.S. 20+ year T-bonds, were the most effective and efficient risk hedges. TTT performed the best. TYO, a LIETF indexed to 7–10 year U.S. T-notes, performed poorest overall. Liquidity issues limited the effectiveness of mortgage-based put options. Real estate futures proved less successful than the best of the LIETFs. The authors find that the advantages of LIETF include simplicity of implementation, limited loss potential, and high liquidity; additionally, tracking error was not a problem over the lengthy risk hedge implementation period for the LIETFs. The authors conclude that the potential for severe tracking error, when used beyond a single trading day, is the primary limitation of LIETFs, so caution is appropriate, and frequent monitoring and management by skilled traders and well-informed portfolio managers are essential.

Seller Over-Pricing and Listing Contract Length: The Effects of Endogenous Listing Contracts on Housing Markets

This paper examines how seller pricing decisions influence listing contract length and how these decisions affect price and liquidity in housing markets. Because list price affects broker effort required to sell the property, brokers respond to seller overpricing by increasing the negotiated listing contract length. At the same time, sellers respond to longer listing contracts by adjusting their list price strategy. Both list price and length of marketing time affect broker sales effort and therefore a property’s realized selling price and liquidity. Analysis of house transaction data from Virginia indicates that greater over-pricing by sellers prompts brokers to pursue longer listing contracts, which subsequently lengthen marketing time but increase selling price. The results reveal a novel transmission mechanism from higher list price (which induces longer contracts) to selling price and liquidity. Copyright Springer Science+Business Media New York 2014