#2006-028A "Investing for the Long-Run in European Real Estate"
by Carolina Fugazza, Massimo Guidolin, and Giovanna Nicodano
May 2006

We calculate optimal portfolio choices for a long-horizon, risk-averse investor who diversifies among European stocks, bonds, real estate, and cash, when excess asset returns are predictable. Simulations are performed for scenarios involving different risk aversion levels, horizons, and statistical models capturing predictability in risk premia. Importantly, under one of the scenarios, the investor takes into account the parameter uncertainty implied by the use of estimated coefficients to characterize predictability. More...

PUBLISHED: Journal of Real Estate Finance and Economics, January 2007, 34(1), pp. 35-80

#2006-027A "The Duration of Foreclosures in the Subprime Mortgage Market: A Competing Risks Model with Mixing"
by Anthony Pennington-Cross
April 2006

This paper examines what happens to mortgages in the subprime mortgage market once foreclosure proceeding are initiated. A multinominial logit model that allows for the interdependence of the possible outcomes or risks (cure, partial cure, paid off, and real estate owned) through the correlation of associated unobserved heterogeneities is estimated. More...

#2006-024A "Loan Servicer Heterogeneity and The Termination of Subprime Mortgages"
by Anthony Pennington-Cross, and Giang Ho
April 2006

After a mortgage is originated the borrower promises to make scheduled payments to repay the loan. These payments are sent to the loan servicer, who may be the original lender or some other firm. This firm collects the promised payments and distributes the cash flow (payments) to the appropriate investor/lender. More...

#2006-023A "Subprime Refinancing: Equity Extraction and Mortgage Termination"
by Souphala Chomsisengphet, and Anthony Pennington-Cross
April 2006

This paper examines the choice of borrowers to extract wealth from housing in the high-cost (subprime) segment of the mortgage market while refinancing and assesses the prepayment and default performance of these cash-out refinance loans relative to the rate refinance loans. More...

#2006-022A "Predatory Lending Laws and the Cost of Credit"
by Giang Ho, and Anthony Pennington-Cross
April 2006

Various states and other local jurisdictions have enacted laws intending to reduce predatory and abusive lending in the subprime mortgage market. These laws have created substantial geographic variation in the regulation of mortgage credit. This paper examines whether these laws are associated with a higher or lower cost of credit. More...

#2006-019B "Understanding Stock Return Predictability"
by Hui Guo, and Robert Savickas
March 2006
Revised October 2006

Over the period 1927:Q1 to 2005:Q4, the average CAPM-based idiosyncratic variance (IV) and stock market variance jointly forecast stock market returns. More...

#2006-014A "Why People Choose Negative Expected Return Assets - An Empirical Examination of a Utility Theoretic Explanation"
by Thomas A. Garrett, and Nalinaksha Bhattacharyya
March 2006

Using a theoretical extension of the Friedman and Savage (1948) utility function developed in Bhattacharyya (2003), we predict that for financial assets with negative expected returns, expected return will be a declining and convex function of skewness. Using a sample of U.S. state lottery games, we find that our theoretical conclusions are supported by the data. More...

PUBLISHED: Applied Economics, January 2008, 40(1), pp. 27-34

#2006-012B "The Transition to Electronic Communications Networks in the Secondary Treasury Market"
by Bruce Mizrach, and Christopher J. Neely
March 2006
Revised April 2006

This article reviews the history of the recent shift to electronic trading in equity, foreign exchange,
and fixed-income markets. More...

PUBLISHED: Federal Reserve Bank of St. Louis Review, November/December 2006, 88(6), pp. 527-542

#2006-009A "The Impact of Local Predatory Lending Laws on the Flow of Subprime Credit"
by Giang Ho, and Anthony Pennington-Cross
February 2006

Local authorities in North Carolina, and subsequently in at least 23 other states, have enacted laws intending to reduce predatory and abusive lending. While there is substantial variation in the laws, they typically extend the coverage of the Federal Home Ownership and Equity Protection Act (HOEPA) by including home purchase and open end mortgage credit, by lowering annual percentage rate (APR) and fees and points triggers, and by prohibiting or restricting the use of balloon payments and prepayment penalties. More...

FORTHCOMING: Journal of Urban Economics

#2006-008A "Evaluating State Tax Revenue Variability: A Portfolio Approach"
by Thomas A. Garrett
February 2006

State revenue variability is evaluated using a volatility model rooted in portfolio theory. The model evaluates how closely a state's revenue portfolio is constructed to minimize variability in total state tax revenue. The model complements parametric methods of revenue variability. More...

FORTHCOMING: Applied Economics Letters