Employing a recently developed panel econometric technique, first, we show that accounting for spatial dependence and heterogeneity yields more accurate risk factor coefficients and abnormal housing returns. Rather than systematic risks, idiosyncratic risks explain the variations in residential housing excess returns. After controlling for asset-specific and systematic risk factors, the positive and significant impact of the unobservable common factors on the excess returns suggests that speculative market forces drive the housing excess returns. Second, we then analyze the risks and returns of houses in affordable and expensive submarkets allowing for spatial dependence and heterogeneity. We find that houses in the affordable submarkets perform better than houses in the expensive submarkets. Thus, the potential demand for houses in the affordable submarket may aggravate the housing affordability crisis. Our study’s results, therefore, encourage policymakers and investors to view the housing market as a collection of regional units and submarkets, but not as a single national market.
Focusing on energy commodities, industrial metals, and gold, this paper examines the degree to which commodity futures returns depend on news sentiment under various market conditions, and the structure of that dependence. We observe an asymmetric market reaction to positive and negative news sentiment, which changes in periods of financial turmoil. The quantile regression analysis shows that news sentiment's influence on the futures returns follows an upward trend at higher percentiles. This structure flattens for positive news during the global financial crisis, while the slope for the negative component steepens in backwardation periods.
We propose that an options-based approach is a superior alternative to the traditional cost-of-carry method to model both the behaviour of convenience yields and the commodity price responses to changes in inventory levels. This approach is shown to be more robust and avoids the simplifying assumptions embedded in cost-of-carry valuation which fully accounts for the non-negativity constraint on inventory. Unlike the cost-of-carry approach, the options-based approach does not treat the convenience yield as an exogenous factor. This offers a more natural measure of implied convenience yields in commodity trading strategies. We test the relationship between convenience yields and inventory levels for a number of liquidly traded base metals using both methods. Our results show that the relationship between convenience yields and inventory levels is strongly defined under the options-based approach in line with market beliefs. This result is consistent with other studies that have used the optionsbased approach in other nonmetals commodity markets.
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