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PurposeThe American Dream and homeownership are sometimes thought of as one and the same. A belief that homeownership is vital to the fabric of a vibrant society has led to government policies that encourage homeownership. This suggests that homeownership and societal well‐being are positively related. However, empirical analysis does not support this positive relationship either within the USA or across countries. This has important policy implications given the research in this special issue that discusses the macro and micro economic consequences of government programs that promote homeownership. Moving forward, we must consider both the private and public benefits of homeownership and also realize that the very concept of what a house is will likely change. This paper aims to discuss these issues.Design/methodology/approachThe analysis examines the relation between the incidence of homeownership and the well‐being (happiness) of a community. The analysis is first performed across the 50 states and then is done on a cross‐section of 26 countries.FindingsThe correlation coefficient between home ownership rates and well‐being are negative for both the US and international data. The evidence does not support the belief that homeownership is either necessary or sufficient for societal well‐being.Originality/valueThe paper presents some of the first empirical analysis to examine the relationship between homeownership and societal well‐being. Other studies in this special issue document both public and price costs to owning a home. Taken together, the special issue has important implications for government policies that encourage homeownership.

PurposeThis paper aims to examine the anatomy of a real estate bubble. In the process, the paper identifies three phases of the market's evolution: flips, flops and foreclosures. An examination of the Las Vegas real estate market illustrates the three phases.Design/methodology/approachThe paper examines transaction data from the metropolitan Las Vegas area (Clark County) from 1994 to 2009. The first part of the analysis identifies the three phases of the bubble and is descriptive in nature. This is followed by more formal tests of Granger causality.FindingsIn the early part of the sample, a large percentage of transactions are speculative or "flips" causing prices to rapidly increase. Eventually, flipping loses its profitability and over the last three years, there is an increasing number of foreclosures leading to falling prices. The descriptive analysis of the Las Vegas market is augmented with causality tests which show that prices were the driving force behind all three phases in the market's evolution.Research limitations/implicationsFuture research might focus on underlying structural inter‐temporal relationships to augment the Granger causality tests.Practical implicationsAnalysis shows that price is the driving force behind a bubble and that loan modification programs alone will not solve the current housing crisis.Social implicationsGovernment entities might expand neighborhood stabilization programs to affect both demand and supply of homes. Moreover, it might be prudent to include information related to flipping on multiple listing service agreements. Additionally, local governments should be consistent in their record keeping.Originality/valueTo the best of the authors' knowledge, this is the first paper to examine the housing bubble using an extensive set of transaction data.

Benford's Law, a rule concerning first digits of an array of numbers, has frequently been used to test for the reporting quality of financial statements. When applied to the recent experience for Russian banks, one conclusion is that the 2004 regime shift in accounting standards produced higher quality financial statements. Prior to 2004, the Benford evidence suggests that Russian banks tended to round revenues up, expenses down and thus overstate net income. It also appears that banks may have presented stronger balance sheets than warranted. In the second part of the analysis, the practical use of Benford's Law to discern a looming bank failure appears limited. While there is, perhaps, some beneficial information to be drawn from testing for Benford distribution conformity, in isolation the tests for financial statement manipulation are inconclusive. Instead, Benford might be used with other early warning detection algorithms to recognize impending bank failures.

PurposeThe purpose of this paper is to explore the changing role of housing wealth from an investment vehicle to a welfare resource. It also considers the implications of economic prosperity and decline in the UK on homeowners, intentions of equity withdrawal, and the consequences of managing household budgets.Design/methodology/approachThe paper takes the form of a quantitative longitudinal analysis of national data and panel survey, including random effects logistic regression model.FindingsHousing wealth is increasingly being used as a financial safety net across the life course. Homeowners are equally likely to have engaged in equity‐borrowing episodes during periods of economic prosperity as they are during periods of decline; particularly, lone parents with non‐dependent children and unemployed people. Housing tends to be used as a last resort once other forms of credit have been exhausted.Research limitations/implicationsThere are data constraints; equity withdrawal can only be calculated from 1994 and the latest wave of data available is 2008. The research is not therefore able to consider the full extent of the consequences of the current recession, however, it does provide an indication of the problems that may emerge.Social implicationsSocial implications arise from the concentration of resources into housing wealth; homeowners may suffer through having increased debt and there are implications for financial and sustainable welfare policy where home ownership is positioned as a nation's welfare resource.Originality/valueThe paper draws upon the author's recent work (in collaboration with others) which offers insights into the motivations for equity borrowing. This paper offers an original contribution through presenting empirical evidence on the effect of economic prosperity and economic decline on household behaviour, and adds new insights in respect of the implications for households who rely on housing wealth in the context of the current recession.

Traditional hedging using financial derivatives involves the risk inherent in commodity or financial asset prices. This article examines the potential use of derivatives to hedge macroeconomic risk in the public sector. Analyzed is the relationship between state personal income & national aggregate income to explain new futures contracts based on economic indicators that can be used to manage budgetary risk. The authors provide evidence that hedging using macroeconomic derivatives may be feasible; possible risk-management strategies for the public sector are discussed. The analysis also considers a number of practical issues concerning government hedging using financial derivatives & compares the practice with traditional hedging using rainy day funds. Findings indicate that a hedging strategy that adjusts for a state's relation to national economic cycles might be an attractive risk-management tool for at least half of all states. Tables, Figures, References. Adapted from the source document.

PurposeThis paper seeks to examine the role that regulation and regulatory agencies played in the creating of the subprime mortgage market, and the subsequent crash of the mortgage market. The paper has two goals. First, it seeks to document the degree to which the US housing markets, and the US housing finance market, were regulated prior to the crash. Second, it seeks to show that regulatory bodies set policies which created both incentives and explicit requirements for Fannie Mae and Freddie Mac, as well as depository institutions, to enter the subprime market.Design/methodology/approachThe paper examines the regulatory environment of the subprime market. It uses regulatory filings and other documents as primary sources.FindingsThe popular perception that the subprime mortgage market arose because housing finance was largely unregulated is incorrect. In point of fact, the housing finance market was very heavily regulated. Indeed, the paper shows that the creation of the subprime market was a formal goal of the federal government, and that federal regulatory agencies explicitly required participation by the Government Sponsored Enterprises (GSEs).Originality/valueThe paper's primary implication is that incentive conflicts within the US housing finance system significantly contributed to the mortgage crisis. These incentive conflicts were not just within private firms, but also extend to the GSEs and regulatory agencies. Regulatory agencies not only failed to anticipate the crisis; they actively encouraged the policies which created it. As a result, the primary focus of reform efforts should be on identifying and eliminating such conflicts.

AbstractThe use of derivatives to infer future exchange rates has long been a subject of interest in the international finance literature. With the recent currency crises in Mexico, Southeast Asia, and Brazil, work on exchange rate expectations in emerging markets is of particular interest. For some emerging markets, foreign equity options are the only liquid exchange‐traded derivatives with currency information embedded in their prices. Given that emerging markets sometimes undergo currency realignment with discrete jumps in their exchange rate, estimation of risk‐neutral probability density functions from foreign equity option data provides valuable evidence concerning market expectations. To illustrate the use of foreign equity options in estimating market beliefs, we consider Telmex options around the 1994 peso devaluation and find evidence that markets anticipated the change in the Mexican government's foreign exchange policy.

AbstractCEOs who participate in hunting and fishing benefit by appreciating natural environments and permanently consuming natural resources. We examine whether CEOs who hunt and fish make different environmental decisions and find that firms led by CEOs who obtain the most hunting and fishing licenses have lower environmental performance as measured by MSCI-KLD. This effect is strongest in the environmental category of climate change but also extends to pollution, waste, and the protection of natural capital. Furthermore, firms led by CEOs with the most hunting and fishing licenses are significantly more likely to pay a regulatory settlement for an environmental regulatory infraction.