ON DEMAND: CROSS-COUNTRY EVIDENCE FROM COMMERCIAL REAL ESTATE ASSET MARKETS

Using over 25 years of quarterly U.S. and Japanese time series data, this paper examines the determinants of demand for an important class of real assets: commercial real estate. We specify a structural model of market equilibrium that considers direct effects of real investment on built asset price. Our empirical findings are consistent across countries and produce several new results. First, we find that real investment exerts a significant positive direct effect on asset price, which in turn feeds back to impact investment decisions. Second, idiosyncratic risk is found to be strongly positively related to asset price, and to complement supply effects. Third, systematic risk is priced as expected, where the strength of the relation between asset price and systematic risk is found to be higher than in previous studies of capital asset prices. Fourth, lagged values of price determinants (of up to two years) are consistently important in real asset demand estimation. Alternative explanations for our findings are analyzed and discussed. Implications for asset pricing model specification and interpretation are also considered.equity REIT; IPO; interest-rate sensitivity; risk-adjusted return performance

Non-Standard Errors

In statistics, samples are drawn from a population in a data-generating process (DGP). Standard errors measure the uncertainty in estimates of population parameters. In science, evidence is generated to test hypotheses in an evidence-generating process (EGP). We claim that EGP variation across researchers adds uncertainty: Non-standard errors (NSEs). We study NSEs by letting 164 teams test the same hypotheses on the same data. NSEs turn out to be sizable, but smaller for better reproducible or higher rated research. Adding peer-review stages reduces NSEs. We further find that this type of uncertainty is underestimated by participants

Essays in international finance

This thesis studies the role of global risk within the context of international finance. In total, the thesis is composed of three essays. In Chapter 2, I investigate the impact of global risk on the cross-border flows of funding between banks. Specifically, I decompose gross cross-border bank-to-bank funding between arms-length (interbank) and related (intragroup) funding, and show that while interbank funding is withdrawn when global risk is high, intragroup funding remains stable during these periods, despite being more volatile on average. The results are in contradiction with theoretical predictions for the behavior of cross-border banking fl ows, and help explain why certain banking systems lost more cross-border bank-to-bank funding than others during the global financial crisis of 2008. In Chapter 3, I turn my attention to the currency market and show that global imbalances are a fundamental economic determinant of currency risk premia. I propose a factor that captures exposure to countries' external imbalances - termed the global imbalance risk factor - and show that it explains most of the cross-sectional variation in currency excess returns. The economic intuition of this factor is simple: net foreign debtor countries offer a currency risk premium to compensate carry trade investors willing to finance negative external imbalances. Finally, in Chapter 4, I focus again on the currency market by investigating the fundamental source of variation in currency betas. Theoretical models of currency premia offer precise explanations for why currencies exhibit heterogeneous exposure (betas) to risk. Characteristic factors, constructed to reflect these 'beta predictions' of leading models of currency premia would, therefore, also be expected to explain the cross-section of currency portfolio returns. I find, however, that none of the factors can explain any of the cross-sectional spread in returns. Yet alternative non-theoretical characteristic factors, based on macroeconomic, financial and political risk, perform almost universally well in cross-sectional tests. But these factors can also be dismissed as explanations for heterogeneous currency betas, with a simple secondary test. The findings imply a need for a stricter empirical benchmark for assessing all theoretical models of currency premia. Moreover, by investigating currency betas, I show that standard empirical asset pricing techniques can filter out around 99% of spurious currency risk factors