Contributions published at Financial Economics (Thorsten Hens)

The paper applies spatial econometric techniques to measure the impact of airport noise on the price of single-family homes in the Zurich Airport area. We exploit a large database of geo-referenced noise measurements to investigate the reaction of prices to different noise metrics. The particular institutional setting of Zurich Airport, with changing patterns of runways configurations allows to distinguish the impact of noise at different times of the day. The use of neighborhood fixedeffects is compared to the results given by a costlier modelling strategy involving a rich set of location descriptors. The paper documents the impact of airport noise on housing prices. In the base model specification the Noise Discount Index is 0.97% with typical discounts in the range of -2% to -8%. Accounting for the spatiality of the data has little effect on the results.

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In den letzten Monaten haben energiepolitische Themen Schlagzeilen gemacht. Zum einen, weil sich die Bevölkerung zunehmend um die Auswirkungen der globalen Erwärmung sorgt. Zum anderen – der wohl wichtigere Grund –, weil die stark ansteigenden Energiepreise in vielen Haushaltsbudgets ihre Spuren hinterlassen haben. Nicht nur an der Tankstelle erreichen die Treibstoffpreise neue Höchststände. Auch nach dem jüngsten Preisrückgang bleiben sie gut doppelt so hoch wie 2003. Zudem haben verschiedene Elektrizitätsversorger weitere Preis anpassungen nach oben angekündigt. Energie als ein Aspekt der Nachhaltigkeit Wer heute in Immobilien investiert – sei es als Eigen heimbesitzer oder als institutioneller Investor – kann weder die Energiefrage noch das Thema der Nachhaltigkeit umgehen. Begriffe wie «Nachhaltigkeit » und «Energieeffi zienz» müssen allerdings konkretisiert werden. Für Personen, die keine Baufachleute sind, ist es schwierig zu beurteilen, ob eine Liegenschaft nachhaltig gebaut wurde. In dieser Situation können Labels oder Ratings als Entscheidungshilfe dienen. Ein in der Schweiz bereits gut etabliertes Energie-Label wird vom Verein Minergie vergeben. Mit über 10 000 zertifi zierten Liegenschaften gehört Minergie zu den bekanntesten Öko- Labels. Das Label erhalten Gebäude, die spezifi sche Grenzwerte für den Energieverbrauch einhalten (siehe Box). Damit kann die geforderte Bauqualität quantifi ziert und eine zuverlässige Bewertung ab ge geben werden. Lohnt sich Minergie? Diese Studie versucht am Beispiel des Minergie- Labels, einige grundlegende energieökonomische Fragen, die sich potenzielle Eigenheimbesitzer oder Immobilieninvestoren vermehrt stellen, pragmatisch zu beantworten. «Lohnt sich Minergie?» ist eine der Fragen, denen die vorliegende Arbeit nachgeht. Die Arbeit beschränkt sich nicht auf die Kosten/ Nutzen-Analyse von energiesparenden Investitionen. Ebenso wichtig ist zu wissen, ob und wie der Immobilienmarkt – damit sind alle Käufer und Verkäufer von Liegenschaften gemeint – energiesparende Massnahmen bewertet und einschätzt. Um ein Ergebnis dieser Studie vorwegzunehmen: es ist durchaus denkbar, dass die Mehrkosten, die die Einhaltung des Minergie-Standards verursacht, die erwarteten Ersparnisse übersteigen. Dennoch werden diese Mehrkosten vom Markt entschädigt. Es besteht offensichtlich eine Nachfrage nach umweltfreundlichen, energiesparenden Bauinvestitionen – auch wenn diese Nachfrage noch relativ klein und vor allem im gehobenen Marktsegment angesiedelt ist. Die ökonometrische Analyse in der vorliegenden Studie umfasst Minergie-Wohngebäude im Kanton Zürich, da einzig für den Kanton Zürich Daten in ausreichender Qualität vorliegen. Die öffentlich verfügbaren Daten zu Minergie-Liegenschaften wurden für differenzierte Analysen mit eigenen Daten beständen verknüpft.

This dissertation collects three essays on the hedonic modelling of housing prices, location attributes and environmental amenities – or lack thereof. The first essay applies spatial econometric techniques to measure the impact of airport noise on the price of single-family homes in the Zurich Airport area. We exploit a large database of geo-referenced noise measurements to investigate the reaction of house prices to different noise metrics. The particular institutional setting of Zurich Airport, with a changing pattern of runway configurations allows to distinguish the impact of noise at different times of the day. The use of neighborhood fixed-effects is compared to the results given by a costlier modelling strategy involving a rich set of location descriptors. We document the impact of airport noise on housing prices. In the base model specification, the Noise Discount Index, i.e. the percentage depreciation per dB of aircraft noise, is 0:97%. Typical discounts are in the range of –2% to –8%. The results are similar to comparable Swiss and international studies on the impact of aircraft noise on residential property prices. From a methodological point of view, we show that accounting for the spatiality of the data has little effect on the results. In the second essay we estimate the willingness to pay for housing attributes of single-family home owners located in the greater Zurich area. A revealed-preferences approach is used, in which a structural hedonic model is identified and estimated. Our approach explicitly accounts for the heterogeneity of preferences of the owner-occupiers. Again, we use the GIS to match the data describing the housing characteristics and the attributes of the location to the socioeconomic traits of the owners. We perform a nonparametric estimation of the hedonic model that allows us to recover the preference parameters. We measure the impact of income differences on the willingness to pay for five major characteristics, i.e. travel time to the city center, size and age of the housing unit, lot size and proximity to a major environmental amenity, the Lake of Zurich. We show that the willingness to pay for the environmental amenity and for centrality is highly income elastic, while the demand for the lot size and for the house surface is not. We put the model in the context of the new urban economic literature which studies the importance of amenities for the location decision of households in cities. In the last part of the dissertation, we touch on another typical urban economics topic – the elasticity of substitution between capital and land. This concept is key in understanding some important phenomena like urban sprawl or urban density. Combining two new rich data sets on disaggregated land and house transactions, we propose one of the first estimates of this elasticity for a non-U.S. metropolitan region. For the region of Zurich we find an elasticity of substitution of 0:6 and an own-price elasticity of the demand for land of –0.5. These relatively low estimates imply that a policy aiming at restricting the supply of open spaces and limiting the availability of unimproved land may have a large impact on house prices.

Structured financial products have gained more and more popularity in recent years, but nevertheless has their success so far not thoroughly been analyzed. In this article we develop a theoretical framework for the design of optimal structured products and analyze the maximal utility gain for an investor that can be achieved by introducing structured products. We demonstrate that most successful structured products are not optimal for a perfectly rational investor and investigate the reasons that make them nevertheless look so attractive for many investors

This paper argues that the commonly used market indices imply forms of active investment management in disguise. The selection and rebalancing rules make these indices highly exclusive and dynamic regarding their underlying components and significantly bias their performance. Any passive investment tracking these indices turns into an active strategy characterised by market timing and state-dependent performance. Evidence is provided that exclusive indices outperform (underperform) more inclusive peer indices in upward (downward) markets. The constitution and maintenance rules of exclusive indices correspond to a set of active trading and investment rules similar to momentum strategies.

Economists have forcefully argued for the introduction and use of property derivatives as a hedge against house price risk (e.g. Shiller and Weiss, 1999). The rationale for these financial instruments seems clear, as many households are heavily invested in housing and standard financial instruments offer a poor hedge. In practice, however, most of the property derivatives available have been targeted to meet the needs of institutional investors, not those of owner-occupiers. Building on the recent launch of the first Swiss property derivative, we here propose index-linked mortgages tailored to retail consumers. The payments of these mortgages depend on the corresponding housing market performance. We further price the instruments, discuss the stabilization of the homeowner's net wealth, and quantify the expected decrease in the mortgage default risk achieved by this immunization effect.

Property derivatives have the potential to revolutionize real estate - the last major asset class without a liquid derivatives market. The new instruments offer ease and flexibility in the management of property risk and return. Property funds, insurance companies, pension and life funds, speculators, hedge funds or any asset manager with a view on the real estate market can apply the new derivatives to hedge property risk, to invest synthetically in real estate, or for portfolio optimization. Moreover, developers, builders, home suppliers, occupiers, banks, mortgage lenders and governmental agencies can better cope with their real estate exposure using property derivatives. This book is a practical introduction to property derivatives and their numerous applications. Providing a comprehensive overview of the property derivatives market and indices, there is also in-depth coverage of pricing, hedging and risk management, which will deepen the readers understanding of the market's mechanisms. Covering both the theoretical and practical aspects of the property derivatives markets; this book is the definitive reference guide to a new and fast-growing market.

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Previous studies suggest that choices are perceived as difficult as well as negatively emotion-laden when they tap into moral considerations. However, we propose that the involvement of moral issues and values can also facilitate decisions because people often insistently preclude them from trade-offs with other values. Because such values are treated as inviolable and absolute, they are called sacred values (e. g., Tetlock et al., 2000). Two experiments examined the influence of sacred values (measured by a recent self-report scale) and variation of trade-off type (taboo, tragic, routine trade-offs) on perceived decision difficulty and negative emotions. As hypothesized, decision difficulty and negative emotions show diverging patterns as a function of sacred values and trade-off types. When the decision situation involved two conflicting sacred values (i.e., tragic trade-off), people perceived the decision task as emotionally stressful and difficult. However, when the decision situation was associated with only one sacred value (i.e., taboo trade-off), people perceived the task as more negatively emotion-laden, but as easier to solve, compared to a situation not involving sacred values (i.e., routine trade-off). These findings suggest that reliance on sacred values may work as a heuristic.

This research investigates whether consumers judge the environmental quality of food products differently according to whether the products are presented separately or jointly and whether assimilation or contrast effects are more likely to occur. Study 1 revealed contrast effects when products were judged in separate evaluation. Study 2 revealed assimilation effects when products were judged in joint evaluation. Increasing the range of the product alternatives, however, produced a displacement of the judgments in the opposite direction, indicating contrast effects again. Comparing the environmental judgments across both studies, reversal effects in judgments and ordering of products could be demonstrated. Overall, the findings underline that environmental judgments are highly unstable and context-dependent.

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We propose a framework that allows a portfolio manager to quantify the probability of simultaneous losses in multiple assets of a collateral portfolio. Using this framework, we propose a methodology to conduct stress tests on the market value of the portfolio of collateral when undesirable extreme dependence occurs. This framework permits us to quantify the potential impact on the portfolio returns of systemic events that change, or 'break down', the historical comovement structure, imposing an adverse extreme dependence.We illustrate our framework using securities pledged as collateral in the Canadian securities clearing and settlement system.

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