Vitor Leone

Equity Ownership in Cross-border Mergers and Acquisitions by British Firms: An Analysis of Real Options and Transaction Cost Factors

The authors investigate the factors influencing the share of equity ownership sought in cross-border mergers and acquisitions (CBM&As). Drawing on real options theory and transaction cost economics (TCE), they address and hypothesize key factors linked to commitment under exogenous uncertainty and the separation of desired and non-desired assets’ influence on share of equity sought by acquiring firms in CBM&As. Empirical analysis based on 1872 CBM&As undertaken by British firms in both developed and emerging economies shows that British MNEs are more likely to pursue a partial acquisition in a target foreign firm when those foreign firms are from culturally distant countries. Further, findings support the view that the high cost of separating desired assets from non-desired assets motivates firms to make a partial acquisition rather than acquire the target completely. This is one of the first studies to use real options theory to address the cost of commitment under exogenous uncertainty, as well as TCE logic to address the separation of desired and non-desired assets in the target firm while analysing equity ownership sought in CBM&As. Empirically, this paper contributes by examining CBM&As by British firms in both developed and emerging markets.

An investigation of regime shifts in UK commercial property returns: a time series analysis

The random-walk hypothesis, vis-à-vis asset price, suggests that prices traded in a market cannot be predicted based on historical information. Employing unsecuritized UK commercial property returns, we analyse this hypothesis by investigating regime shifts or multiple changes in persistence in the series. Our results uncover regime shifts in both the aggregate and sector-specific data. Specifically, the shifts are less frequent in the Industrial sector, compared to the Office, Retail and Aggregate returns data. We highlight some implications for academics, practitioners and regulators.

Stock Market Co-Movement in Latin America

This paper investigates co-movement in eight Latin-American stock markets (Argentina, Brazil, Chile, Colombia, Ecuador, Mexico, Peru, and Venezuela) using common factor analysis. The common factors are obtained using principal component analysis (PCA) and therefore account for the maximum portion of the variance present in the stock exchanges investigated. We test for co-movement in different periods so as to ascertain any changes that have taken place from one period to the next. In particular, we examine rolling windows with 5-year, 3-year, 2-year, and 1-year periods. We also specify and estimate a vector autoregressive (VAR) model and test for co-movement between the eight markets during the sample period by means impulse response functions. The results of both methods show that co-movement between the exchanges over the entire sample period does not converge. However, we find evidence of an increasing co-movement from 2002 to 2008, which implies a growing integration between these markets. However, the trend towards increasing integration between the stock markets seems to have suffered a setback in 2008 due to the world financial crisis. Since then, a possible resume to the trend of increasing integration is unclear. The impulse response analysis shows that Argentina, Brazil, Chile, Colombia, Mexico and Peru present moderate response to shocks in each other’s markets and very low responses to shocks in Ecuador and Venezuela’s markets. Also, responses of Ecuador and Venezuela’s market returns to shocks in the other markets are very low.

Frontiers of commercial real estate portfolio performance: Are sector-region-efficient diversification strategies a myth or reality?

Abstract This paper departs from the traditional optimisation methods used to evaluate portfolio performance. Rather, the Stochastic Frontier Analysis approach is used to econometrically determine the benchmark real estate portfolio frontier and subsequently assess the gains from diversifying real estate portfolios along regional and sectoral dimensions in the UK. Portfolio specific inefficiency measures are obtained which indicate whether a portfolio is efficiently diversified and therefore places on the benchmark frontier and if not, the degree to which performance can be improved is quantified. Portfolio-specific efficiencies average at 85–91%, indicating scope to further improve performance. Further, diversification be it on a sectoral or regional dimension, contributes to significantly lower variability in portfolio efficiencies.

A Stochastic Frontier Analysis of Real Estate Portfolio Diversification

This paper departs from the traditional optimisation methods used to evaluate portfolio performance. Rather, the Stochastic Frontier Analysis approach is used to econometrically determine the benchmark real estate portfolio frontier and subsequently assess the gains from diversifying real estate portfolios along regional dimensions in the UK. Portfolio specific inefficiency measures are obtained which indicate not only if a portfolio is efficiently diversified and therefore places on the benchmark frontier and if not, the degree to which performance can be improved is quantified.

Multiple Changes in Persistence vs. Explosive Behaviour: The Dotcom Bubble

Based on a method developed by Leybourne, Kim and Taylor (2007) for detecting multiple changes in persistence, we test for changes in persistence in the dividend-price ratio of the NASDAQ stocks. The results confirm the existence of the so-called Dotcom bubble around the last turn of the century and its start and end dates. Furthermore, we compare the results with a test for detecting and date-stamping explosive unit-root behaviour developed by Phillips, Wu and Yu’s (2011) also applied to the NASDAQ price and dividend indices. We find that Leybourne, Kim and Taylor’s test is capable of detecting the Dotcom bubble as much as Phillips, Wu and Yu’s test is, but there are significant differences between the bubble start and end dates suggested by both methods and between these and the dates reported by the financial media. We also find an unexpected negative bubble extending from the beginning of the 1970s to the beginning of the 1990s where the NASDAQ stock prices were below their fundamental values as indicated by their dividend yields, which has not been reported in the literature so far.