Three essays on finance and real estate




Chen, Jun

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My dissertation investigates the impact of trading location on cross-listed equity returns and topics in real estate. It contains three chapters.

The first chapter empirically examines Taylor's (1999) theoretical prediction that longer time on the market is associated with a perception of lower quality. Our most robust result is from an ordered-logit model that provides evidence that an increase in marketing time is negatively related to property quality. Results from a time on the market duration model indicate that higher quality properties take less time to market and lower quality properties take longer to market relative to a typical property in the sample. We also estimate a probit model that indicates higher quality properties are more likely to sell and lower quality properties are less likely to sell. The empirical results from the models support Taylor's theoretical model predictions that buyers perceive a longer time on the market as a signal of poor quality or the presence of a defect and thus, properties that remain on the market longer have a lower probability of selling.

Prior research indicates a discount for foreclosures sold through the MLS. The second chapter examines this discount over submarkets in the single family home market. Our results indicate that smaller houses have the largest discount associated with a foreclosure of approximately 24%, while the middle two quartiles and the upper quartile based on square feet, have a discount of approximately 19%. The results are robust after we include a proxy for property quality. The results are consistent with Pennington-Cross's (2006) argument, that the foreclosures in the lower quartile properties have lower appreciation than the top three quartiles. Across submarkets, negative spillover effects are lowest for small properties and highest for large properties, possibly indicating a greater stigma for foreclosed houses in larger size neighborhoods. Controlling for housing quality significantly reduces the observed spillover effect.

The third chapter examines market sentiment and the importance of trading location in British American Depository Receipts (ADRs) traded in the US. Perfect integration between UK markets and UK ADRs is ruled out given that UK ADRs exhibit an intraday, U-shaped volatility curve. Both a variance decomposition analysis and an EGARCH model show that UK ADR returns are driven more by US market returns than US-traded UK ETF returns. These results indicate the existence of US market sentiment for UK ADRs and that trading location influences pricing behavior.


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