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Article: Empirical estimation of the option premium for residential redevelopment

TitleEmpirical estimation of the option premium for residential redevelopment
Authors
KeywordsData set
Empirical analysis
Estimation method
Hedonic analysis
Housing market
Issue Date2012
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/regec
Citation
Regional Science and Urban Economics, 2012, v. 42 n. 1-2, p. 240-256 How to Cite?
AbstractThis paper presents and validates a novel empirical approach for measuring the value of the option to redevelop using a standard hedonic dataset. Our analysis generalizes the standard hedonic model to account for the option value of reconfiguring hedonic characteristics. We test this model with over 162,000 real estate transactions in 53 towns in Connecticut between 1994 and 2007 by adding a non-linear intensity variable, which increases with the aggregate value of structure and decreases with land value. A conservative estimate is that about 20% of towns have significantly positive option value, with a mean value of 29-34% for properties most similar to vacant land. Multiple tests across towns support predictions of real options theory. Positive option value towns have higher house price volatility and estimated option value varies positively with price volatility, a finding inconsistent with NPV theory. We also find positive association between option value and drift in house prices and a U-shape relation with house price adjusted for structural characteristics. Higher property taxes reduce the value of option to redevelop. © 2011 Elsevier B.V.
Persistent Identifierhttp://hdl.handle.net/10722/152834
ISSN
2015 Impact Factor: 1.024
2015 SCImago Journal Rankings: 1.328
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorClapp, JMen_HK
dc.contributor.authorSK, Bardosen_HK
dc.contributor.authorWong, SKen_HK
dc.date.accessioned2012-07-16T09:49:59Z-
dc.date.available2012-07-16T09:49:59Z-
dc.date.issued2012en_HK
dc.identifier.citationRegional Science and Urban Economics, 2012, v. 42 n. 1-2, p. 240-256en_HK
dc.identifier.issn0166-0462en_HK
dc.identifier.urihttp://hdl.handle.net/10722/152834-
dc.description.abstractThis paper presents and validates a novel empirical approach for measuring the value of the option to redevelop using a standard hedonic dataset. Our analysis generalizes the standard hedonic model to account for the option value of reconfiguring hedonic characteristics. We test this model with over 162,000 real estate transactions in 53 towns in Connecticut between 1994 and 2007 by adding a non-linear intensity variable, which increases with the aggregate value of structure and decreases with land value. A conservative estimate is that about 20% of towns have significantly positive option value, with a mean value of 29-34% for properties most similar to vacant land. Multiple tests across towns support predictions of real options theory. Positive option value towns have higher house price volatility and estimated option value varies positively with price volatility, a finding inconsistent with NPV theory. We also find positive association between option value and drift in house prices and a U-shape relation with house price adjusted for structural characteristics. Higher property taxes reduce the value of option to redevelop. © 2011 Elsevier B.V.en_HK
dc.languageengen_US
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/regecen_HK
dc.relation.ispartofRegional Science and Urban Economicsen_HK
dc.subjectData seten_HK
dc.subjectEmpirical analysisen_HK
dc.subjectEstimation methoden_HK
dc.subjectHedonic analysisen_HK
dc.subjectHousing market-
dc.titleEmpirical estimation of the option premium for residential redevelopmenten_HK
dc.typeArticleen_HK
dc.identifier.emailClapp, JM: john.clapp@business.uconn.eduen_HK
dc.identifier.emailSK, Bardos: ksalavei@fairfield.edu-
dc.identifier.emailWong, SK: kelvin.wong@hku.hk-
dc.identifier.authorityWong, SK=rp01028en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1016/j.regsciurbeco.2011.08.007en_HK
dc.identifier.scopuseid_2-s2.0-80053474795en_HK
dc.identifier.hkuros201867en_US
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-80053474795&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume42en_HK
dc.identifier.issue1-2en_HK
dc.identifier.spage240en_HK
dc.identifier.epage256en_HK
dc.identifier.isiWOS:000300029200022-
dc.publisher.placeNetherlandsen_HK
dc.identifier.scopusauthoridWong, SK=7404591021en_HK
dc.identifier.scopusauthoridBardos, KS=36990337900en_HK
dc.identifier.scopusauthoridClapp, JM=7102741912en_HK
dc.identifier.citeulike9773717-

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