Empirical Testing Of Real Options In The Hong Kong Residential Real Estate Market PDF Download

Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Empirical Testing Of Real Options In The Hong Kong Residential Real Estate Market PDF full book. Access full book title Empirical Testing Of Real Options In The Hong Kong Residential Real Estate Market.

Empirical Testing of Real Options in the Hong Kong Residential Real Estate Market

Empirical Testing of Real Options in the Hong Kong Residential Real Estate Market
Author: Huimin Yao
Publisher: Open Dissertation Press
Total Pages:
Release: 2017-01-27
Genre:
ISBN: 9781361417157
GET BOOK

Download Empirical Testing of Real Options in the Hong Kong Residential Real Estate Market Book in PDF, ePub and Kindle

This dissertation, "Empirical Testing of Real Options in the Hong Kong Residential Real Estate Market" by Huimin, Yao, 姚惠敏, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Empirical Testing of Real Options in the Hong Kong Residential Real Estate Market Huimin YAO Department of Real Estate and Construction, The University of Hong Kong August 2005 Abstract Hong Kong has been using the leasehold system of land management rather than freehold since its colonial era. This system controlled and presently still controls use of leased land through leasehold conditions. Many leases granted decades ago thus require formal modifications to lease conditions to formalize proposed changes in land use; or to realize the actual present economic value of the land, usually following a land valuation process and payment to government of a "premium" intended to reflect the value of the land in its revised use, usually determined by standard discounted cash flow methodology. From a real options analysis perspective, such land use conversions and analysis of real options associated therewith are significantly more complex than typical stylized land development real options encountered in academic literature and research. There is thus considerable interest in obtaining empirical evidence of the performance of real options valuation in land development applications, where options associated with land development rights are substantially constrained due to regulatory influences. A review of institutional framework in Hong Kong demonstrates that developers essentially own only one type of flexibility in practice that follows typical real options analysis literature, i.e., time flexibility, while other flexibilities are rather constrained due to regulatory influence. The aim of this paper is to outline major factors in operationalizing academic real options research for practical application in a particular land market with significant regulatory constraints, and then test two hypotheses derived from real options literature using actual residential real estate development projects in Hong Kong which require leasehold land use conversions as data. The two hypotheses are: (1) there is a significant and positive difference between the land conversion premium calculated by option pricing theory and the land conversion premium calculated by the authorities (based on DCF principles); and (2) developers are expected to delay the development of land to the point predicted by the real options model. To address these two hypotheses, applied research methodology was adopted and regulatory documentation and case studies were identified to frame the design of the applied work to address institutional complexities, and to facilitate identification of critical lease covenants for real option pricing. The perpetual American call option pricing model was chosen for individual case analysis since multiple time extensions were allowed. It was demonstrated that hypothesis 1 was supported. It was further found that hypothesis 2 was also supported, which means that options were generally optimally exercised. The importance of this research is that it finds empirical support for real options theory in a sample of actual heterogeneous development projects under substantial regulatory constraints and also finds evidence for optimal exercise of real options. From a public policy perspective, these findings imply that the Hong Kong government has systematically undervalued development land in the lease modification cases. DOI: 10.5353/th_b3617334 Subjects: Real

Real Options, Portfolio Effects and Financial Structure

Real Options, Portfolio Effects and Financial Structure
Author: Jianfu Shen
Publisher: Open Dissertation Press
Total Pages:
Release: 2017-01-26
Genre:
ISBN: 9781361328446
GET BOOK

Download Real Options, Portfolio Effects and Financial Structure Book in PDF, ePub and Kindle

This dissertation, "Real Options, Portfolio Effects and Financial Structure: Theory and Evidence From Hong Kong Real Estate Companies" by Jianfu, Shen, 沈建富, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: The aim of this research is to investigate corporate behavior, including investment and financing decisions, when corporations face uncertainty and flexibility/inflexibility, and to explore the effects of this behavior on real option valuation. It expands the real options analysis framework into two paths: the first is to add institutional details, portfolio aspects and financial structure into the classical real option model; the other is to extend the real option model into a firm valuation model with corporate investment and financing decisions. Two types of theoretical models are developed. The first set of theoretical models follows the framework of binomial option pricing. Three binomial option pricing models are constructed to represent real estate development in Hong Kong, in which developable land has different flexibility in accordance with covenants in typical land lease contracts. First, the firm may have contractually limited time to complete the development following conversion of urban fringe/agricultural land into commercial/residential land after paying a negotiable "land premium"; second, it may buy land from the market without development time constraints; or thirdly it may buy land at public auction also with contractual development time constraints. The three binomial models deal with the flexibility/inflexibility in these land development circumstances imposed by institutional arrangements. Interaction effects from cost-saving through co-development and potential price increases through agglomeration effects from co-location of multiple options are included in the binomial models. The financial structure of the firm is also seen to influence real option values, because capital structure could imply different capital costs in the exercise of the real options, which is ignored in traditional real option theory. In addition to the traditional factors in financial option pricing models, numerical examples show that interaction effects and capital structure influence real option values and their investment thresholds. The second set of theoretical models aims to value both real flexibility and financial flexibility dynamically and simultaneously. Financial flexibility in the firm, which is seen as an important factor in the capital structure decision, is itself seen as analogous to a real option in project valuation, as the firm can use some debt capacity to invest in the opportunity but still preserve unused capacity for future opportunities. The thesis argues that the firm owns the financial flexibility to adjust its debt through sale of its existing assets or to use these as loan collateral. The firm with more collateralizable assets would have larger debt capacity, use more debt and invest more through the flexible utilization of debt capacity. Two empirical tests are conducted to confirm the findings of the theoretical models, structured into three principal hypotheses: firstly, real option value is not only determined by embedded flexibility, but also by the existing corporate asset structure through interactions and the firm's ability to trade or collateralize its existing assets (properties); second, real option value and real option execution/investment is directly influenced by external financing decisions due to financial frictions and constraints; and thirdly, financial flexibility is expected to increase corpor

The Informational Content of Indirect Real Estate Options

The Informational Content of Indirect Real Estate Options
Author: Na Li
Publisher: Open Dissertation Press
Total Pages:
Release: 2017-01-27
Genre:
ISBN: 9781374670716
GET BOOK

Download The Informational Content of Indirect Real Estate Options Book in PDF, ePub and Kindle

This dissertation, "The Informational Content of Indirect Real Estate Options: Evidence From Hong Kong" by Na, Li, 李娜, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Abstract of Thesis Titled The Informational Content of Indirect Real Estate Options: Evidence from Hong Kong Submitted by LI Na For the degree of Doctor of Philosophy At The University of Hong Kong in December 2006 There has been ample research on the relationship between the implied volatility of financial options and the realized volatility of the underlying stock. Empirical results on whether or not implied volatility contains information on future realized volatility have been mixed. This study contributes to this area of research by analyzing the informational content of derivative warrants (financial options) of property companies (indirect real estate) in Hong Kong. Previous studies suggested that there is a strong link between the prices of indirect real estate and those of direct real estate. However, there has been no research on the link between the options of indirect real estate and direct real estate. Using a sample of listed companies with a relatively long history of warrants listed on the Hong Kong Stock Exchange, I found that there was no obvious relationship between the implied volatility and the realized volatility of the underlying stock. This is consistent with the results from previous studies. However, with regard to direct real estate, the informational content of implied volatility is different for the two broad categories of indirect real estate, namely investment companies and development companies. Investment companies hold properties for investment purposes. Their major source of revenue is rental income. I found that the implied volatility of the warrant of investment companies contained future information on the volatility of direct real estate. This result is expected, since the financial market is more liquid, and therefore, changes in the economic and political environment (such as interest rate movements and changes in fiscal and economic policies in Hong Kong and Mainland China) that are likely to affect the volatility of rental income will first be reflected in the warrant market. The results are, however, different for development companies. I found that the implied volatility of development companies contains information about the historical volatility of direct real estate. That is, the warrants of property development companies are priced based on historical volatility in the direct real estate market, which is a less liquid market. This apparently counterintuitive result can be explained by property development risk and the uncertainties that developers have to face than pricing presale housing units. The property developer has to bear the development risk in addition to fluctuations in property prices. The sources of development risks come mainly from the uncertainty in obtaining approvals from various government departments. Furthermore, in many cases, there is also uncertainty involved in negotiations with different stakeholders and pressure groups. Development risk may also vary according to the nature and timing of a development project. In essence, development risks are unique, and therefore, historical events have little predictive power. On the other hand, when developers sell their units in the presale market, they often face the problem of setting the right presale price that optimizes total profit. In the price searching process,

Office Construction in Singapore and Hong Kong

Office Construction in Singapore and Hong Kong
Author: Yuming Fu
Publisher:
Total Pages: 26
Release: 2008
Genre:
ISBN:
GET BOOK

Download Office Construction in Singapore and Hong Kong Book in PDF, ePub and Kindle

We advance the real-option-based empirical analysis of commercial real estate investment in three respects. First, we test several real option implications for real estate construction that have not been examined in the commercial real estate investment literature. In particular, we show that market volatility makes the effect of real interest rate and the expected demand growth on hurdle rent more negative, as the real option models predict. Second, we use a cointegrating vector of office employment and office stock to provide a better control of the demand for new construction than the traditional indicators based on real estate prices and vacancy rates. Third, whereas the existing studies focus on the U.S. commercial real estate markets, we study two major office markets in Asia, namely Singapore and Hong Kong. We are able to use the stock market prices in these two city states to generate forward-looking measures of office demand growth expectations and volatility.

The Uncertainty of House Prices and Real Options in China

The Uncertainty of House Prices and Real Options in China
Author: Konstantinos P. Vergos
Publisher:
Total Pages: 29
Release: 2018
Genre:
ISBN:
GET BOOK

Download The Uncertainty of House Prices and Real Options in China Book in PDF, ePub and Kindle

This study investigates the real options with spatial analysis in China's real estate markets. We employ new detailed macro-level data set for 31 provinces in China to test the central predictions of real options with respect to land development. We extended the real options method with spatial Durbin model (SDM), making this the first time that real option predictions have been tested in a spatial manner. We also examine the tests of SDM including spatial fixed measures, time fixed measures, and spatial and time fixed measures of expected future prices and price uncertainty. This method improves the accuracy of predicting the value of house prices and considers the neighbouring regional house prices. We measure the degree of price uncertainty by a generalized autoregressive conditional heteroskedasticity (GARCH) model. To explore for the presence of real options in house prices, vacant land sales price is regressed on SDM measures of future house price uncertainty. Moreover, we employed Black-Scholes' (1973) pricing model to explore the option premium of land value. The weight of the evidence in this paper suggests there are real options in China's real estate markets. Uncertainty about future house prices of neighbouring regions drives up land prices in China. The findings suggested that uncertainty about future housing prices of neighbouring regions decreases investment activity in the current period; uncertainty about future house prices of neighbouring regions raises land prices above the discounted stream of rents in their current use.Market house prices of neighbouring regions reflect a premium for optimal development, which based on our estimates has a mean of 16.28% of the land value. A one-standard-deviation increase in uncertainty lowers the likelihood of development by 1.101%.

Disposition Effect in the Housing Market

Disposition Effect in the Housing Market
Author: Kwan-To Wong
Publisher: Open Dissertation Press
Total Pages:
Release: 2017-01-26
Genre:
ISBN: 9781361007396
GET BOOK

Download Disposition Effect in the Housing Market Book in PDF, ePub and Kindle

This dissertation, "Disposition Effect in the Housing Market: Empirical Evidence From Hong Kong" by Kwan-to, Wong, 王鈞濤, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Disposition effect is one of the most documented trading anomalies studied in financial market. Its presence has been established over time horizons, time periods and market participants. This study will examine such trading behavior in the housing market. Using Mei Foo Sun Chuen estate, one of the largest and most frequent transacted estate in Hong Kong, we show that disposition effect is present in this market. A major difficulty in the statistical analysis is the presence of censored data problem, which is hard to circumvent in linear regression models. So we adopt a survival analysis approach, which can accommodate the issue and fit the data structure. The other difficulty is the possibility of omitted variables in the analysis. Instead of appealing to instrumental variables model approach, which is widely applied in many research studies on individual behavior but is extremely hard to be justified in a whole market case, we make use of partial identification approach to estimate bounds for the estimates rather than just a point estimate. Even though this seems offer us less precise information, it is still informative, especially when the bounds are narrow, and it is much less vulnerable to the validity of instruments. Besides the above techniques, we use bootstrapping method to estimate the standard errors throughout the analysis in order to make valid inference. There are three main results we have established in this study. First, the disposition effect is present in Hong Kong housing market. It shows up in both in pre-1997 and post-1997 periods, which suggest that it is a general phenomenon rather than a short-term trading pattern arising from a major macroeconomic event. Secondly, we show that it is the nominal perspective loss that matters, but not real loss. This confirms the validity of basic setup of both Prospect theory and most previous empirical studies on the disposition effect. Thirdly, the disposition effect is more significant for short term owner of less than 3 years. In fact, the disposition effect is absent or even reverses for those flat owners of more than 6 years. Comparing to the very first study on disposition effect by Shefrin & Statman (1985), our study makes a step forward in understanding trading behavior. We extend it applicability to housing market while their focus is only on financial market even though we are not the first to attempt the extension. We not only show the presence of disposition effect in the housing market, we also show that disposition effect is time dependent. Our results lead further support to disposition effect that its key component, loss, matters only in nominal term, not in real term. Instead of only applying ordinary least squared regression methods, which is widely used in the literature, we apply partial identification approach to tackle the endogeneity issue and apply duration models to deal with censored data and unobserved heterogeneity issues. All this makes our statistical results more robust. DOI: 10.5353/th_b5108661 Subjects: Housing - Prices - China - Hong Kong Investments - Psychological aspects

PRICE-VOLUME RELATIONSHIP IN H

PRICE-VOLUME RELATIONSHIP IN H
Author: Man-Suen Ho
Publisher: Open Dissertation Press
Total Pages: 156
Release: 2017-01-27
Genre: Technology & Engineering
ISBN: 9781374721890
GET BOOK

Download PRICE-VOLUME RELATIONSHIP IN H Book in PDF, ePub and Kindle

This dissertation, "The Price-volume Relationship in Hong Kong's Residential Market" by Man-suen, Ho, 何敏璇, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Abstract of Thesis Titled The Price-Volume Relationship in Hong Kong's Residential Market Submitted by Ho Man Suen For the degree of Doctor of Philosophy At The University of Hong Kong in August 2004 This thesis examines the relationship between transaction price and transaction volume in Hong Kong's residential market. The rational expectation hypothesis suggests that there should be no relationship between price and volume in the capital market. However, there is sufficient empirical evidence to suggest otherwise, particularly in the more developed real estate market. Both positive contemporaneous and lead-lag relationships have been reported. Nevertheless, these relationships were observed using dubious data, such as valuation-based real estate price indices, over a relatively short time horizon. This thesis investigates the nature of the price-volume relationship using a high frequency repeat sales index over a relatively long time horizon. Hong Kong's residential market, which is dominated by high-rise apartments, is sufficiently active for us to construct a monthly residential price index over a 33-year period from 1970 to 2003. This index is sufficiently long and also of a very high frequency for us to examine the nature of the price-volume relationship in the residential market and test alternative theories under different test conditions. There are three main theories that explain the price-volume relationship. They are the Rational Expectation Theory, the Information Asymmetric Theory, and the Market Imperfection Theory. Each theory implies a different price-volume relationship. The Rational Expectation Theory suggests that there should be no relationship between price and volume. The Information Asymmetric Theory recognizes investors' heterogeneity. The better-informed group takes advantage of the others and initiates trading activities before major price changes occur. The Market Imperfection Theory implies that price leads volume due mainly to down payment constraints. These theories are not mutually exclusive, since the test conditions were different. The residential market in Hong Kong has undergone a number of major changes that has led to the prevalence of different test conditions. This study makes use of these changes and tests alternative theories under different test conditions. Before 1984, the residential market in Hong Kong had yet to develop, and information costs were high. All market participants were equally informed and uninformed. Prices could then reflect the limited information from the property market instantly. The price-volume relationship should be consistent with the Rational Expectation Theory. Negotiations between the British and Chinese Governments over the tenure of land in Hong Kong started in 1982, and were settled with the signing of the Joint Sino-British Agreement in 1984. Many people were then not confident in the future of Hong Kong and decided to sell their homes in Hong Kong before migrating to other countries. This led to a panic selling of residential units, but at the same time also attracted more rational traders who took advantage of it. They analyzed market information and bought and sold undervalued residential units to make short term profits. A group of professional speculators who are more informed than the average end users/owners emerged, and this led to information asymmetry. Information asymmetry implies that transac