Offering a unifying theoretical perspective not readily available in any other text, this innovative guide to econometrics uses simple geometrical arguments to develop students' intuitive understanding of basic and advanced topics, emphasizing throughout the practical applications of modern theory and nonlinear techniques of estimation. One theme of the text is the use of artificial regressions for estimation, reference, and specification testing of nonlinear models, including diagnostic tests for parameter constancy, serial correlation, heteroscedasticity, and other types of mis-specification. Explaining how estimates can be obtained and tests can be carried out, the authors go beyond a mere algebraic description to one that can be easily translated into the commands of a standard econometric software package. Covering an unprecedented range of problems with a consistent emphasis on those that arise in applied work, this accessible and coherent guide to the most vital topics in econometrics today is indispensable for advanced students of econometrics and students of statistics interested in regression and related topics. It will also suit practising econometricians who want to update their skills. Flexibly designed to accommodate a variety of course levels, it offers both complete coverage of the basic material and separate chapters on areas of specialized interest.

Estimation and Inference in Econometrics

In this book, Andrew Harvey sets out to provide a unified and comprehensive theory of structural time series models. Unlike the traditional ARIMA models, structural time series models consist explicitly of unobserved components, such as trends and seasonals, which have a direct interpretation. As a result the model selection methodology associated with structural models is much closer to econometric methodology. The link with econometrics is made even closer by the natural way in which the models can be extended to include explanatory variables and to cope with multivariate time series. From the technical point of view, state space models and the Kalman filter play a key role in the statistical treatment of structural time series models. The book includes a detailed treatment of the Kalman filter. This technique was originally developed in control engineering, but is becoming increasingly important in fields such as economics and operations research. This book is concerned primarily with modelling economic and social time series, and with addressing the special problems which the treatment of such series poses. The properties of the models and the methodological techniques used to select them are illustrated with various applications. These range from the modellling of trends and cycles in US macroeconomic time series to to an evaluation of the effects of seat belt legislation in the UK.

Forecasting, Structural Time Series Models and the Kalman Filter

﻿LEAVING aside the courageous efforts of people around Monthly Review and Science and Society there has, by and large, been hardly any Marxist tradition among American intellectuals. However, during the last few years the situation has considerably changed and there is now a growing interest in Marxism, particularly among the younger social scientists of America. The book under review falls within this trend.

Value and Capital

Some Theoretical Problems Suggested by the Movements of Interest Rates, Bond Yields and Stock Prices in the United States Since 1856.

Defining Housing Submarkets

Analyses data from the USA and UK to determine whether diversification within a region by property type is better than diversification between regions within a property type. Compares both strategies to full diversification by both property type and region. Calculates and compares property type and regional correlation matrices. Produces efficient frontiers and calculates principal components to determine if there are dominant property type or regional dimensions to real estate returns. Suggests that for the USA a purely retail portfolio diversified over all regions would have been almost as effective as a fully diversified portfolio. In the UK, there is less diversity across regions within retail property. Overall, there is no simple conclusion applicable to all regions and all property types in either country.

Real estate portfolio diversification by property type and region

Summary Studies which use modern portfolio theory (MPT) to calculate the optimal allocation to property in a multi‐asset portfolio are fundamentally flawed. These suggest optimal theoretical allocations for property which are much higher than actual allocations to property. Criticism can be made of: the exclusion of other eligible assets from the analysis; the use of a mean‐variance optimization technique on estimated data; the inadequacies of the historical data which understates risk and correlation and may overstate return; the changing characteristics of property as an investment; the indivisibility of property and the consequent difficulties in achieving a diversified property portfolio; the complexity of risk as a concept compared to the simple and simplistic definition used in MPT; and the omission of explicit consideration of differential liquidity. An alternative which offers a more practicable framework for decision‐making is a combination of econometric techniques to forecast income under diffe...

The allocation to property in the multi‐asset portfolio: The evidence and theory reconsidered

This study investigates the short term inflation hedging characteristics of U.K. real estate compared to other U.K. investments. It considers not only total returns but also changes in income and changes in capital values. The analyses are undertaken using annual and quarterly data. Stocks, bonds, appraisal-based real estate (including the three property types separately) and real estate stocks are considered. Real estate series, constructed from the original appraisal series to take account of autocorrelation, are also used. The methodology is based on that devised by Fama and Schwert (1977) and tests are undertaken for stationarity and for structural breaks. Hypotheses are established about the coefficients on expected and unexpected inflation in the model and these are tested. It is concluded that real estate has poorer short term hedging characteristics for total return, change in capital value and change in income than stocks but better characteristics than bonds. However, there is evidence to suggest that the relationships change under different economic environments.

The Short Term Inflation Hedging Characteristics of UK Real Estate

Based on a multivariate analysis of long‐term total returns and inflation data over the period 1963‐1993, shows that commercial property total returns reflect both expected and unexpected components of inflation in the long term. There is no evidence that property returns systematically provide, on an annual basis, hedging characteristics against either of these components.

The long term inflation hedging characteristics of UK commercial property

Addresses the issue of valuation variation. The fundamental research question is to establish the range of valuations which a group of qualified valuers operating in the same market and using the same basic assumptions would produce in their estimation of price. It significantly extends the approach adopted by Hager and Lord and draws conclusions about different market sectors, locations and size of firms. The results of the survey show a wide variation in value across both rack rented and reversionary interests. In terms of the former over 80 per cent of all valuations produced a variation from the mean of less than 20 per cent with a corresponding figure of over 90 per cent for the reversionary investments. These levels of accuracy fall short of the contention that valuers can value to within 5‐10 per cent of market value.

N. Nanthakumaran

Papers

Real estate portfolio diversification by property type and region

The allocation to property in the multi‐asset portfolio: The evidence and theory reconsidered

The Short Term Inflation Hedging Characteristics of UK Real Estate

The long term inflation hedging characteristics of UK commercial property

An analysis of valuation variation in the UK commercial property market: Hager and Lord revisited