The changing relationships between government bond yields and capitalisation rates

2015 ◽  
Vol 8 (2) ◽  
pp. 153-171 ◽  
Author(s):  
Colin Jones ◽  
Neil Dunse ◽  
Kevin Cutsforth
Keyword(s):  
Real Estate ◽  
Interest Rates ◽  
Structural Breaks ◽  
Global Financial Crisis ◽  
Bond Yields ◽  
Government Bonds ◽  
Content Type ◽  
Yield Gaps ◽  
The Global Financial Crisis ◽  
Over Time

Purpose – The purpose of this paper is to analyse the gap between government bonds (index-linked and long-dated) and real estate yields/capitalization rates over time for the UK, Australia and the USA. The global financial crisis was a sharp shock to real estate markets, and while interest rates and government bond yields fell in response around the world, real estate yields (cap rates) have risen. Design/methodology/approach – The absolute yield gap levels and their variation over time in the different countries are compared and linked to the theoretical reasons for the yield gap and, in particular, a changing real estate risk premium. Within this context, it assesses whether there have been structural breaks in long-term relationships during booms and busts based on autoregressive conditionally heteroscedastic (ARCH) models. Finally, the paper provides further insights by constructing statistical models of index-linked and long-dated yield gaps. Findings – The relationships between bond and property yields go through a traumatic time around the period of the global financial crisis. These changes are sufficiently strong to be statistically defined as “structural breaks” in the time series. The sudden switch in the yield gaps may have stimulated a greater appreciation of structural change in the property market. Research limitations/implications – The research focuses on the most transparent real estate markets in the world, but other countries with less developed markets may respond differently. Practical implications – The practical implications relate to how to value real estate yields relative to interest rates. Originality/value – This is the first paper that has compared international yield gaps over time and examined the role of the gap between index-linked government bonds and real estate yields.

scholarly journals Pricing risk and its use in modelling real estate market yields

2020 ◽  
Vol 38 (5) ◽  
pp. 419-433
Author(s):  
Tony McGough ◽  
Jim Berry
Keyword(s):  
Real Estate ◽  
Global Financial Crisis ◽  
Real Estate Market ◽  
Commercial Real Estate ◽  
Government Bonds ◽  
Content Type ◽  
Real Estate Markets ◽  
Market Sentiment ◽  
The Global Financial Crisis ◽  
Risk Measurements

Purpose In the light of past financial and economic turmoil, there has been a marked increase in the volatility in real estate markets. This has impacted on the pricing of property assets, partly through market sentiment and particularly concerning risk. It also limits modelling accuracy model accuracy. The purpose of this paper is to create a new variable and model to enhance analysis of what drives real estate yields incorporating market sentiment to risk. Design/methodology/approach This paper specifically considers the modelling of property pricing within a volatile economic environment. The theoretical context begins by analysing the relationship between property yields and government bonds. The analytical context then moves on to specifically include a measurement of risk which stresses its role and importance in investment markets since the Global Financial Crisis. The model thus incorporates macroeconomic and real estate data, together with an international risk multiplier, which is calculated within the paper. Findings The paper finds the use of measurements of market sentiment and risk are more powerful tools for modelling yields than previous techniques alone. Research limitations/implications This is an initial paper outlining the creation of sentiment and risk measurements in the financial market and showing an example of its application to a commercial real estate market. The implication is that this could add a major new explanatory variable to modelling of yields. Practical implications The paper highlights the importance of risk in the pricing of commercial real estate, over and above normal variables. It highlights how this can help explain over and undershooting of yields within commercial real estate which would be of great importance in the investment world. Originality/value This paper attempts to explicitly measure market sentiment, pricing of risk and how this impacts real estate pricing.

scholarly journals High-Frequency Estimates of the Natural Real Rate and Inflation Expectations

2021 ◽  
Vol 2021 (034) ◽  
pp. 1-32
Author(s):  
Alex Aronovich ◽  
◽  
Andrew Meldrum ◽  
Keyword(s):  
Interest Rates ◽  
High Frequency ◽  
Global Financial Crisis ◽  
Inflation Expectations ◽  
Study Analysis ◽  
Bond Yields ◽  
Short Term ◽  
Real Rate ◽  
Nominal Interest Rates ◽  
The Global Financial Crisis

We propose a new method of estimating the natural real rate and long-horizon inflation expectations, using nonlinear regressions of survey-based measures of short-term nominal interest rates and inflation expectations on U.S. Treasury yields. We find that the natural real rate was relatively stable during the 1990s and early 2000s, but declined steadily after the global financial crisis, before dropping more sharply to around 0 percent during the recent COVID-19 pandemic. Long-horizon inflation expectations declined steadily during the 1990s and have since been relatively stable at close to 2 percent. According to our method, the declines in both the natural real rate and long-horizon inflation expectations are clearly statistically significant. Our estimates are available at whatever frequency we observe bond yields, making them ideal for intraday event-study analysis--for example, we show that the natural real rate and long-horizon inflation expectations are not affected by temporary shocks to the stance of monetary policy.

The effects of the global financial crisis on the capital structure of EPRA/NAREIT Europe index companies

2015 ◽  
Vol 8 (1) ◽  
pp. 3-23 ◽  
Author(s):  
Giacomo Morri ◽  
Andrea Artegiani
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Capital Structure ◽  
Global Financial Crisis ◽  
Pecking Order ◽  
Trade Off ◽  
Content Type ◽  
The Global Financial Crisis ◽  
The Impact ◽  
The Capital Structure

Purpose – The purpose of this paper is to test whether the financial crisis has affected the capital structure of real estate companies in Europe and whether these impacts can be studied utilizing the variables traditionally used by the trade-off and pecking-order theories to explain the capital structure of companies. Design/methodology/approach – The study uses a fixed-effect panel regression analysis and a sample composed of companies included in the EPRA/NAREIT Europe Index. The effect of the financial crisis has been accounted for within the model by means of a dummy variable. Findings – The global financial crisis did have an impact on the capital structure of companies and the main variables traditionally used by the trade-off and pecking order theories proved to be suitable in explaining the capital structure of real estate companies. Real estate investment trusts are, on average, more leveraged than traditional real estate companies due to their special regulatory status. Research limitations/implications – The study is limited to the European market and UK companies in particular account for a large part of the sample. In addition, major regulatory differences between the various European countries are not taken into account in the model. Originality/value – Similar studies have been performed for the US and Australian market. However, the impact of the global financial crisis has not been traditionally considered in these studies.

Income return versus capital appraisal for real estate funds during the financial crisis

2015 ◽  
Vol 10 (1) ◽  
pp. 66-79
Author(s):  
Gianluca Mattarocci ◽  
Georgios Siligardos
Keyword(s):  
Financial Crisis ◽  
Real Estate ◽  
Global Financial Crisis ◽  
Capital Gains ◽  
Annual Reports ◽  
Content Type ◽  
Income Sources ◽  
Overall Performance ◽  
The Global Financial Crisis ◽  
The Impact

Purpose – The overall performance of real estate funds can be ascribed to capital appreciation and/or income return. The Italian property funds market has grown significantly over the past few years; however, little is known about the key drivers of property fund performance. The purpose of this paper is to measure the impact of two sources of funds’ performance and identify their relevance during the financial crisis. Design/methodology/approach – The paper considers the Italian market in the last decade and analyses the annual reports of public real estate funds, separating appraisal returns from income returns. By considering a wide time horizon, it evaluates if the roles of income returns and capital gains with respect to overall performance are more or less influenced by fund characteristics, such as asset diversification, concentration, and leverage. Findings – The contribution of income return and capital growth are not strictly related to the overall performance of Italian real estate funds, with a significantly lower correlation during the global financial crisis. Furthermore, the main drivers of the two income sources are not strictly comparable. Originality/value – The paper presents the first analysis on the source of income return for the Italian real estate funds and it represents one of the few studies that considers the effect of the financial crisis on European indirect real estate investments, capital appreciation and income return.

scholarly journals External Debt Management in Pakistan: A Market-Based Assessment

2017 ◽  
Vol 22 (Special Edition) ◽  
pp. 25-51
Author(s):  
Jamshed Y. Uppal
Keyword(s):  
Interest Rates ◽  
Global Financial Crisis ◽  
External Debt ◽  
International Markets ◽  
Debt Management ◽  
Bond Yields ◽  
Yield Spreads ◽  
Marginal Costs ◽  
Low Interest Rates ◽  
The Global Financial Crisis

Economists typically use multiple indicators to assess the burden of external debt, such as the ratios of the stock of debt to exports and to gross national product, and the ratios of debt service to exports and to government revenue. As opposed to those methodologies, this article examines the Pakistan’s external debt position using a market based approach which analyzes the marginal costs of external debt as indicated by the yields on the country’s Eurobonds and the spreads on the Credit Default Swaps (CDS) traded in the international markets. The results show a sharp decline in the yields on the Pakistani Eurobonds from their peak reached during the global financial crisis (GFC) period and this decline was largely driven by quantitative easing and the resultant low interest rates in the international debt markets. Also, the continued decline in the yields in the more recent period, 2013-2017, was due to strengthening of the county’s borrowing capacity over the period. The analysis also shows that Pakistani yields seem to be converging to yields for other Asian countries, even though that the yield-spreads between Pakistan and others countries are still substantial. In conclusion the decrease in bond yields and CDS spreads may signal that the country’s external debt is currently at sustainable levels.

scholarly journals Volatility of yields of government bonds among GIIPS countries during the sovereign debt crisis in the euro area

Equilibrium ◽  
2016 ◽  
Vol 11 (1) ◽  
pp. 61 ◽  
Author(s):  
Tomas Heryan ◽  
Jan Ziegelbauer
Keyword(s):  
Euro Area ◽  
Sovereign Debt ◽  
Global Financial Crisis ◽  
Debt Crisis ◽  
Sovereign Debt Crisis ◽  
Bond Yields ◽  
Government Bonds ◽  
Yield Spreads ◽  
Crisis Period ◽  
The Global Financial Crisis

The aim of the paper is to estimate, how the volatility of yields of the Greek bonds affects yields’ volatilities of bonds in selected European countries during the period of the sovereign debt crisis in the euro area. We obtained data for 10-year bonds in a weekly frequency from January 2006 till the end of December 2014. To make a comparison of pre-crisis period, we firstly investigate a bond yields’ volatility before 15th September 2008, when U.S. Leman Brothers bankrupted and the global financial crisis had been reflected in full. However, the period of the global financial crisis could also negatively affect the development of government bonds. Therefore, the period after Leman Brothers’ bankruptcy has been excluded and our crisis period starts after 23rd April 2010, when Greece asked the IMF for financial help and the sovereign debt crisis had been reflected in full. Volatility models GARCH (1,1), IGARCH (1,1) and TARCH (1,1) were used as an estimation method. To examine the risk premium of all GIIPS economies (Greece, Ireland, Italy, Portugal and Spain), we also compared the whole investigation with the developments of each spread against the yields of German government bonds. Our results clearly proved not only big differences between pre-crisis and crisis period, but also differences in output with the bond yield spreads. It was concluded that  there has been a higher impact of the Greek bond yields, as well as yield spreads volatility in 2010 and 2011, while it is on the lower level in pre-crisis period.

Policy will be key to supporting cashless consumption

2018 ◽  
Keyword(s):  
Interest Rates ◽  
Digital Divide ◽  
Financial Services ◽  
Global Financial Crisis ◽  
Content Type ◽  
Electronic Transactions ◽  
Opt Out ◽  
The World ◽  
Low Interest Rates ◽  
The Global Financial Crisis

Subject Cashless society transformation. Significance Transacting electronically is quicker and cheaper than using cash, provided the infrastructure is in place to support the transactions. Across the world, the number of electronic transactions and the supporting infrastructure has surged over the last two decades. Card payments averaged 25.3% of GDP in 2016 in the 24 countries the Committee for Payments and Markets Infrastructure covers, up from 12.8% in 2000. Despite this, cash retains a key role, paradoxically even more since the global financial crisis, as ultra-low interest rates in the ten post-crisis years reduced the opportunity cost of holding cash. Impacts All cashless transactions are automatically tracked, forcing consumers to sacrifice more privacy without the ability to ‘opt-out’. An individual’s credit standing will gain importance and may become as key to gaining employment as it is to accessing financial services. There will be a digital divide not only in access to and exclusion from financial services but also the ability to pay. Payments for services could become the fastest-growing category of cashless transactions.

Macroeconomic factors and stock prices in the food and drink industry

2019 ◽  
Vol 121 (7) ◽  
pp. 1627-1641
Author(s):  
Jana Šimáková ◽  
Daniel Stavárek ◽  
Tomáš Pražák ◽  
Marie Ligocká
Keyword(s):  
Interest Rates ◽  
Stock Prices ◽  
Stock Price ◽  
Global Financial Crisis ◽  
Supply And Demand ◽  
Macroeconomic Factors ◽  
Content Type ◽  
Food And Drink ◽  
The Global Financial Crisis ◽  
The Impact

Purpose The purpose of this paper is to estimate and evaluate the impact of macroeconomic fundamentals on stock prices of selected food and drink industry stocks during the period of 2005–2015, which saw the global financial crisis and its aftermath. Design/methodology/approach The paper employed correlation analysis and the Johansen cointegration test with the vector error correction mechanism for EU companies operating in the food and drink industry. The paper tested the effects of GDP, inflation and interest rates (IR) on the stock prices of companies from Austria, Croatia, Cyprus, Denmark, Finland, Germany, Ireland, Italy, Lithuania, Poland, Spain and the UK. Findings Based on the results, the authors can see that GDP has a generally positive effect on stock price development. In contrast, the relationship between stock prices and inflation and IR is negative in most cases. Originality/value Despite the fact that a majority of empirical research on companies in the food and drink sector was performed using the microeconomic approach, this paper used the macroeconomic approach and clearly demonstrated the effects of selected macro-variables on stock prices in selected EU markets. Macroeconomic factors shape the company’s performance and could potentially lead to persistent changes in supply and demand conditions in food and drink markets.

Inflation persistence and structural breaks

2016 ◽  
Vol 43 (6) ◽  
pp. 980-1005 ◽  
Author(s):  
Giorgio Canarella ◽  
Stephen M. Miller
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Structural Breaks ◽  
Global Financial Crisis ◽  
Structural Break ◽  
Mean Reversion ◽  
Inflation Persistence ◽  
Content Type ◽  
The Usa ◽  
The Global Financial Crisis

Purpose The purpose of this paper is to report on a sequential three-stage analysis of inflation persistence using monthly data from 11 inflation targeting (IT) countries and, for comparison, the USA, a non-IT country with a history of credible monetary policy. Design/methodology/approach First, the authors estimate inflation persistence in a rolling-window fractional-integration setting using the semiparametric estimator suggested by Phillips (2007). Second, the authors use tests for unknown structural breaks as a means to identify effects of the regime switch and the global financial crisis on inflation persistence. The authors use the sequences of estimated persistence measures from the first stage as dependent variables in the Bai and Perron (2003) structural break tests. Finally, the authors reapply the Phillips (2007) estimator to the subsamples defined by the breaks. Findings Four countries (Canada, Iceland, Mexico, and South Korea) experience a structural break in inflation persistence that coincide with the implementation of the IT regime, and three IT countries (Sweden, Switzerland, and the UK), as well as the USA experience a structural break in inflation persistence that coincides with the global financial crisis. Research limitations/implications The authors find that in most cases the estimates of inflation persistence switch from mean-reversion nonstationarity to mean-reversion stationarity. Practical implications Monetary policy implications differ between pre- and post-global financial crisis. Social implications Global financial crisis affected the persistence of inflation rates. Originality/value First paper to consider the effect of the global financial crisis on inflation persistence.

scholarly journals EUROPEAN FINANCIAL MARKET INTEGRATION: A CLOSER LOOK AT GOVERNMENT BONDS IN EUROZONE COUNTRIES

2020 ◽  
Vol 3 (1) ◽  
pp. 78-86
Author(s):  
Paulo Alexandre ◽  
Rui Dias ◽  
Paula Heliodoro
Keyword(s):  
Financial Crisis ◽  
Market Integration ◽  
Global Financial Crisis ◽  
Bond Yields ◽  
Government Bonds ◽  
Sovereign Bond ◽  
Sovereign Bonds ◽  
Debt Markets ◽  
Debt Market ◽  
The Global Financial Crisis

This research aims to test the interdependencies between the Eurozone, US and Japanese debt markets, through the yields of 10-year sovereign bonds. The sample covers the period from 2002:01 to 2019:07. The analysis aims to provide answers to two questions: Has the global financial crisis accentuated the interdependencies in the Eurozone debt markets? If yes, how did it influence the movements in sovereign bond yields? The results suggest that the global financial crisis did not accentuate the levels of interdependence between the main Euro zone debt markets. In addition, the results suggest the existence of high movements in periods of crisis and not crisis. We also found that yields on PIIGS sovereign bonds decreased their interdependencies with their peers in the years 2002 to 2019, with the exception of the Greek debt market.

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