Real estate derivatives as financial instrument – possibility prospects of usage in Poland
-
DOIhttp://dx.doi.org/10.21511/imfi.17(3).2020.12
-
Article InfoVolume 17 2020, Issue #3, pp. 148-159
- 728 Views
-
706 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The article refers to the theoretical framework of the possibility of using real estate derivatives in the Polish financial market. Although the Polish property market is well developed, and Poland is the leader in the Central and Eastern Europe region, there is a gap in the use of financial instruments concerning the property market. Given the lack of a property derivatives market in Poland, conditions and opportunities for this market development are presented. The experience of the United Kingdom and the United States in this field shows that one of the most important aspects is stable and a well-functioning financial market. Therefore, the macroeconomic data and the data of the Polish financial market are examined.
The analysis carried out indicates sufficient conditions and opportunities for the development of real estate derivatives in Poland. The macroeconomic data and data from the capital market have shown the economic environment’s stability and balance. One of the limitations is the existence of a clear and respectable index used as an underlying asset in derivatives on the Polish market. Only WIG real estate index is listed on the Polish Exchange. Although there are sufficient conditions for introducing the real estate derivatives in Poland, the success of all financial innovations depends on the willingness of potential users to use them.
- Keywords
-
JEL Classification (Paper profile tab)G10, G19, R30
-
References42
-
Tables4
-
Figures7
-
- Figure 1. Instruments traded on WSE in 1991–2018
- Figure 2. Stocks traded value and number of listed companies on WSE in 1992–2018
- Figure 3. Market capitalization of listed domestic companies (% of GDP)
- Figure 4. Turnover ratio of domestic shares (%) in 1995–2018
- Figure 5. Liquidity ratio for derivatives (%) in 1998–2018
- Figure 6. Index for quarterly residential property prices selected in Q1-2010–Q1-2019
- Figure 7. The office and retail price index (2004 = 100) in 2000–2018
-
- Table 1. The overview of the introduction of real estate derivatives
- Table 2. Selected macroeconomic indicators of the Polish economy
- Table 3. Estimated value of property in Poland in 2014–2018
- Table 4. Prime yields in selected European cities in 2017–2018
-
- Ananzeh, I. E. N., & Othman, M. D. (2019). Analyzing the effect of financial development on economic growth – the Jordanian experience. Investment Management and Financial Innovations, 16(1), 119-127.
- Arestis, P., Demetriades, P., & Luintel, K. (2001). Financial Development and Economic Growth: The Role of Stock Markets. Journal of Money, Credit and Banking, 33(1), 16-41.
- Beck, T., & Levine, R. (2004). Stock Markets, Banks, and Growth. Journal of Banking & Finance, 28(3), 423-442.
- Bencivenga, V. R., Smith, B. D., & Starr, R. M. (1996). Equity Markets, Transactions Costs, and Capital Accumulation: An Illustration. World Bank Economic Review, 10(2), 241-65.
- Berk, C. (2016). The Role of Real Estate Derivatives in Hedging Real Estate: An Empirical Analysis of the U.S. Commercial Market. International Journal of Financial Research, 7(4), 168-174.
- Calderón, C., & Liu, L. (2003). The direction of causality between financial development and economic growth. Journal of Development Economics, 72(1), 321-334.
- Case, K. E., & Shiller, R. J. (1996). Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate. Journal of Housing Research, 7(2), 243-58.
- Case, K. E., Shiller, R. J., & Weiss, A. (1993). Index-Based Futures and Options Markets in Real Estate. Journal of Portfolio Management, 19(2), 83-92.
- Clayton, J. (2007). Commercial Real Estate Derivatives: The Developing U.S. Market. Real Estate Issues, 32(2), 33-40.
- Cooper, S. K., Groth, J. C., & Avera, W. E. (1985). Liquidity, exchange listing, and common stock performance. Journal of Economics and Business, 37(1), 19-33.
- Demetriades, P. O., & Hussein, K. (1996). Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries. Journal of Development Economics, 51(2), 387-411.
- Demirgüç-Kunt, A., & Levine, R. (1996). Stock Markets, Corporate Finance, and Economic Growth: An Overview. World Bank Economic Review, 10(2), 223-239.
- Deng, Y., & Quigley, J. M. (2008). Index revision, house price risk, and the market for house price derivatives. The Journal of Real Estate Finance and Economics, 37(3), 191-209.
- Eurostat. (2013). Handbook on Residential Property Prices Indices (RPPIs) (Methodologies & Working Papers). Publications Office of the European Union.
- EY. (2019). The Polish Real Estate Guide 2019 Edition Poland. EY.
- Fabozzi, F. J., Shiller, R. J., & Tunaru, R. S. (2012). A Pricing Framework for Real Estate Derivatives. European Financial Management, 18(5), 762-789.
- Fisher, J. D. (2005). New Strategies for Commercial Real Estate Investment and Risk Management. Journal of Portfolio Management, 31(5), 154-161.
- Fisher, J. D., Geltner, D. M., & Webb, B. R. (1994). Value Indices of Commercial Real Estate: A Comparison of Index Construction Methods. The Journal of Real Estate Finance and Economics, 9(2), 137-164.
- FTSE Russell. (2017). FTSE Annual Country Classification Review.
- FTSE Russell. (2018). FTSE Annual Country Classification Review.
- Geltner, D. M., & Fisher, J. D. (2007). Pricing and Index Considerations in Commercial Real Estate Derivatives. Journal of Portfolio Management, Special Real Estate Issue, 33(5), 99-118.
- Geltner, D. M., Miller, N. G., Clayton, J., & Eichholtz, P. (2001). Commercial Real Estate Analysis and Investments. West Group Eagan, MN.
- Ghent, A. C., Torous, W. N., & Valkanov, R. I. (2018). Commercial Real Estate as an Asset Class. Annual Review of Financial Economics, Forthcoming.
- Hinkelmann, Ch., & Swidler, S. (2008). Trading House Price Risk with Existing Futures Contracts. The Journal of Real Estate Finance and Economics, 36(1), 37-52.
- Ibrahim, M., & Alagidede, P. (2018). Effect of financial development on economic growth in sub-Saharan Africa. Journal of Policy Modeling, 40(6), 1104-1125.
- Levine, R. (1991). Stock Markets, Growth, and Tax Policy. Journal of Finance, 46(4), 1445-1465.
- Levine, R., & Demirgüç-Kunt, A. (1999). Stock market development and financial intermediaries: stylized facts (Policy Research Working Papers). The World Bank.
- Millo, Y. (2007). Making Things Deliverable: The Origins of Index-Based Derivatives. The Sociological Review, 55(2_suppl), 196-214.
- Narodowy Bank Polski (NBP). (2018). Financial Stability Report.
- Nguyen, M. L. T., & Bui, T. N. (2019). Stock market, real estate market, and economic growth: an ARDL approach. Investment Management and Financial Innovations, 16(4), 290-302.
- Ofori-Abebrese, G., Pickson, R. B., & Diabah, B. T. (2017). Financial Development and Economic Growth: Additional Evidence from Ghana. Modern Economy, 8(2), 282-297.
- Ono, S. (2017). Financial development and economic growth nexus in Russia. Russian Journal of Economics, 3(3), 321-332.
- Polanski, Z. (2002). Promoting Financial Development: Lessons from Poland. In A. Winkler (Ed.), Banking and Monetary Policy in Eastern Europe. Studies in Economic Transition. London: Palgrave Macmillan.
- Ruiz, J. L. (2018). Financial development, institutional investors, and economic growth. International Review of Economics & Finance, 54, 218-224.
- Shiller, R. J. (1993). Measuring Asset Value for Cash Settlement in Derivative Markets: Hedonic Repeated Measures Indices and Perpetual Futures. The Journal of Finance, 48(3), 911-931.
- Shiller, R. J. (2008). Derivatives Markets for Home Prices (Working Paper No. w13962). National Bureau of Economic Research.
- Shiller, R. J., & Weiss, A. N. (1999), Home Equity Insurance. The Journal of Real Estate Finance and Economics, 19(1), 21-47.
- Škare, M., Sinković, D., & Porada-Rochoń, M. (2019). Financial Development and Economic Growth in Poland 1990–2018. Technological and Economic Development of Economy, 25(2), 103-133.
- Syz, J. M. (2008). Property Derivatives: Pricing, Hedging and Applications. New York: Wiley.
- Tunaru, R., & Fabozzi, F. J. (2017). Commercial Real Estate Derivatives: The End or the Beginning? The Journal of Portfolio Management Special Real Estate Issue, 43(6), 179-186.
- Venter, J. (2007). Barriers to Growth in the US Real Estate Derivatives Market (Doctoral Thesis). Massachusetts Institute of Technology.
- Yang, Y. Y., & Yi, M. H. (2008). Does Financial Development Cause Economic Growth? Implication for policy in Korea. Journal of Policy Modeling, 30(5), 827-840.