Essays on the Role of Soft Data and Spillover Effects in Real Estate
Open Access
- Author:
- Le, Thao Thi
- Graduate Program:
- Business Administration
- Degree:
- Doctor of Philosophy
- Document Type:
- Dissertation
- Date of Defense:
- May 01, 2017
- Committee Members:
- Brent William Ambrose, Dissertation Advisor/Co-Advisor
Brent William Ambrose, Committee Chair/Co-Chair
Austin Jay Jaffe, Committee Member
Liang Peng, Committee Member
Peter G Iliev, Outside Member
Jiro Yoshida, Committee Member
Keith John Crocker, Committee Chair/Co-Chair - Keywords:
- Mortgage-backed securities
Loan modification
soft information
MBS servicer
peer effect
herding
sentiment
homebuilders
spillover
REIT correlation
Financials sector - Abstract:
- This dissertation comprises three essays on the role of soft data and spillover effects in real estate. In the first essay, tracking a sample of modified loans underlying private-label mortgage-backed securities, I compare the modification effectiveness of servicers who originated mortgages versus those who simply serviced them. The probability of re-default among loans modified by the former is over 6.9 percentage point lower than the latter. Further tests show that the differences in modification success likely come from the soft information acquired during the origination process. These findings suggest that the loss of soft information in mortgage securitization can impose a substantial cost on mortgage servicing, which raises important policy implications for government regulations in this market. The second essay examines the effect of peer firm sentiment on firm investment decisions using data from public homebuilders in the U.S. over 2003Q1-2016Q3. Peer sentiment is measured by the NAHB/Wells Fargo Housing Market Index, derived from a monthly survey of homebuilders’ perceptions about the conditions of the single-family housing market. I find that a one-standard-deviation increase in the peer sentiment index induces homebuilders to increase their land inventory by 8.4%-12.6%. In addition, big builders are just as prone to peer sentiment as small firms. Consistent with the catering theory, homebuilders held by more short term investors are more likely to follow their peers than those held mainly by institutional shareholders. Interestingly, firms that overbuild compared to their peers have lower stock returns in the next quarter while underbuilding is rewarded with higher stock prices, but this effect decreases as the magnitude of underbuilding increases. Finally, the third essay investigates the effect of separating real estate from the Financials sector in the Global Industry Classification Standard. Since Sep 1, 2016, real estate became an independent sector instead of being an industry group under the Financials sector together with banks and insurance. Using Real Estate Investment Trusts to represent the new GICS Real Estate sector, I find that their correlation with the Financials sector fell from 0.568-0.775 to 0.338-0.581 after their departure. The reduction in their connection occurred first at announcement and again at implementation. In addition, REIT returns became as much as 60% less volatile than before. However, becoming a separate sector did not affect trading activities in the REIT market, at least in the short post-implementation period covered in this paper.