Effects of Regulatory and Market Constraints on the Capital Structure and Share Value of REITs: Evidence from the Italian Market

In contrast to the US experience, most international (European) real estate investments trusts (REITs) are subject to prudential regulation. This paper investigates the effects of prudential regulation on capital structures and consequently, the REIT share values of major legal and market constraints (i.e. leverage limitations, market discount on net asset value (NAV), tax controls) that affect non-US REITs. Italian market data are used for an empirical analysis. Our hypothesis is that in a constrained environment, the effects on share price significantly depend on the adopted valuation perspective, i.e. if shares are valued by following a NAV or a financial approach. The logic for this hypothesis is that the two valuation methodologies perceive leverage and implied financial risk differently. In particular, we argue that NAV valuation techniques incentivise REITs to maximize leverage regardless of the financial theory which indicates a contrasting impact of debt on the market value of shares. Differences in financial risk perception could also partially explain market price discounts on NAVs.The empirical results seem to support these expectations. Almost all Italian REITs tend to increase debt ratios over time. NAV discounts are significantly related to leverage. The discount effect is largely attributable to NAV increases that result from rising debt levels. On the contrary, share market prices tend to be independent from leverage. The latter result may indicate that the classic capital theory applies and current debt ratios do not imply bankruptcy risk. The results have significant policy implications in terms of an optimal regulatory design.REIT regulation; Leverage; NAV discount; REIT capital structure; REIT valuation

A stochastic model for financiers

In this work, two models for legal and illegal financiers are presented. The aim of the financiers are different: a bank try to minimize the defalt probabilityof the funded company, while the illegal financier aims to bring the company to bankruptcy and, at the same time, to obtain the maximum level of the firm's guarantee wealth. A couple of stochastic dynamic optimization problems are solved. The illegal case let intervene a numerical analysis of the microeconomic situation of the firm, strating fromreal data and writing new simulation�procedure in Matlab and GAMS. The legal case has been solved in closed-form, by using stochastic control theory.

Effects of Regulatory and Market Constraints on the Capital Structure and Share Value of REITs: Evidence from the Italian Market

In contrast to the US experience, most international (European) REITs are subject to prudential regulation. This paper investigates the effects on capital structure and, consequently, on REITs\u2019 share value of the major legal and market constraints (i.e. leverage limitations, market discount on NAV, tax controls) affecting non-US REITS. Italian market data are used for the empirical analysis. Our hypothesis is that in a constrained environment the effects on share price significantly depend on the adopted valuation perspective, i.e. if shares are valued following a NAV or a financial approach. The logic for this hypothesis is that the two valuation methodologies perceive leverage and implied financial risk differently. In particular, we argue that NAV valuation techniques incentivise REITs to maximize leverage regardless of financial theory indicating a contrasting impact of debt on shares\u2019 market value. Differences in financial risk perception could so also partially explain market prices discounts on NAV. The empirical results seem to support these expectations. Almost all Italian REITs tend to increase debt ratios over time. NAV discounts are significantly related to leverage. The discount effect is largely attributable to NAV increases that result from rising debt levels. On the contrary, share market prices tend to be independent from leverage. The latter result may indicate that classic capital theory applies and that current debt ratios do not imply bankruptcy risk. The results have significant policy implications in terms of optimal regulatory design

Robust Portfolio Management

EnWe define and compare robust and non-robust versions of Vol-VaR- and CVaR-portfolio selection models showing that robust CVaR is coherent, easy implementable and the most efficient

Individuazione del rischio di fallimento via panel analysis

Obiettivo del presente lavoro \ue8 la calibrazione di un metodo di stima della probabilit\ue0 di insolvenza per le imprese manifatturiere di dimensioni medio-grandi. Dopo aver verificato il grado di adeguatezza del modello Z-score di Altman su un particolare collettivo di riferimento, si affronteranno alcune note criticit\ue0 di tale approccio, dalla equipartizione della numerosit\ue0 dei sottocampioni fino alla selezione di nuove variabili esplicative dell\u2019insolvenza. Ai fini della definizione di un nuovo modello, un approccio di stima di tipo panel ad effetti fissi consentir\ue0 la identificazione di variabili esplicative della probabilit\ue0 di default diverse, e peraltro in numero inferiore, rispetto a quelle dei modelli \ue0 la Altman ed un considerevole abbattimento dell\u2019errore di previsione

Pre-trade transparency on the Italian Stock Exchange: a trade size model on panel data

The purpose of this study was to analyze the effects that have been caused by changes in pre-trade transparency upon the behavior of stock traders. We used a trade size model and tested it before, during and after the period when the Italian Stock Exchange introduced a 20-level order book with disaggregated orders. Tick by tick data of the whole set of stocks (up to 277) listed on the Italian Stock Exchange were studied through fixed-effects panel models, within intra day (every 30 minutes and 150 minutes) and daily time frames. Our results indicate that order flows, bidask spreads, levels of risk and some information events differentially affect trade sizes when investors receive better information prior to negotiation. Both (intra day) informed and uninformed traders perating in a more transparent market became more reticent, with reduced trades sizes and higher orders’ cancellations. Moreover, it appears that the higher degree of order book disclosure permits traders to downsize their level of risk aversion; i.e. it reduces the ’uncertainty’ that would otherwise result in disrupted trading activity under conditions of information opacity

Environmental, Social and Governance investing: Does rating matter?

In the last decade, the demand for sustainable and social investments has improved. The mutual funds industry has responded to market needs by offering a number of investment products focused on Environmental, Social and Governance (ESG) companies. The aim of this article is to understand if an ESG score can actually be considered a valid criterion that portfolio managers could adopt, along with traditional risk–return optimisation, in selecting asset portfolios. The paper analyses the link between the performance and the ESG score of different sectoral portfolios (one for each sector of the Global Industry Classification Standard), entirely composed of ESG assets, in the search for a clear and strong positive correlation that could suggest an overall advantage to focus on an ex ante choice of assets with high ESG scores

Macro Asset Allocation with Social Impact Investments

Using a unique dataset of 50 listed companies that meet the majority of the OECD requirements for Social Impact Investments, we construct a Social Impact Finance stock index and investigate how investing in Social Impact Firms can contribute to portfolio risk-return performance. We build portfolios with three different methodologies (na\uefve, Markowitz mean-variance optimization, GARCH-copula model), and we study the performance in terms of returns, Sharpe ratio, utility and forecast premium based on a Constant Relative Risk Aversion function for investors with different levels of risk aversion. Consistent with the idea that Social Impact Investment can improve portfolio risk-return performance, the results of our macro asset allocation analysis show the importance of a large fraction of investor portfolios stake committed to Social Impact Investments

Environmental, Social and Governance investing: Does rating matter?

In the last decade, the demand for sustainable and social investments has improved. The mutual funds industry has responded to market needs by offering a number of investment products focused on Environmental, Social and Governance (ESG) companies. The aim of this article is to understand if an ESG score can actually be considered a valid criterion that portfolio managers could adopt, along with traditional risk–return optimisation, in selecting asset portfolios. The paper analyses the link between the performance and the ESG score of different sectoral portfolios (one for each sector of the Global Industry Classification Standard), entirely composed of ESG assets, in the search for a clear and strong positive correlation that could suggest an overall advantage to focus on an ex ante choice of assets with high ESG scores

Impaired NK-cell-mediated cytotoxic activity and cytokine production in patients with endometriosis: A possible role for PCBs and DDE

Endometriosis is a gynaecological disorder characterized by the presence and growth of endometrial tissue in ectopic sites. In this study we examined the immunological functions of patients with endometriosis and serum level of PCBs and p,p'-DDE to verify the impact of these environmental contaminants on the dysregulation of immune functions. We found that proliferative responses and immunoglobulin production were not dysregulated in patients with endometriosis while NK cell activity was significantly down-regulated in these patients. Moreover, a significant down-regulation of IL-1 beta and IL-12 production was found in patients with respect to controls. Serum levels of PCBs and p,p'-DDE were found to be significantly higher in women with endometriosis than in the control group, with respect to the sum of the congeners most prominent in human tissues. In particular, total PCBs concentration in patients with endometriosis and controls was respectively 330 and 160 ng/g fat with respect to the most abundant congeners, while pp-DDE concentration was of 770 and 3 10 ng/g fat. Moreover, we found that normal human PBMC pulsed with PCBs p,p'-DDE and their combination showed a significant down-regulation of NK cell cytotoxic activity and IL-1 beta and IL-12 production. These findings suggest that changes in specific immune parameters correlate with elevated serum PCBs and DDE levels and endometriosis. (c) 2006 Elsevier Inc. All rights reserved