Important Determinants Of Prices Research Articles

Unlocking the black box: Non-parametric option pricing before and during COVID-19.

This paper addresses the interpretability problem of non-parametric option pricing models by using the explainable artificial intelligence (XAI) approach. We study call options written on the S&P 500 stock market index across three market regimes: pre-COVID-19, COVID-19 market crash, and post-COVID-19 recovery. Our comparative option pricing exercise demonstrates the superiority of the random forest and extreme gradient boosting models for each market regime. We also show that the model’s pricing accuracy has worsened from the pre-COVID-19 to the recovery period. Moneyness was the most important price determinants across the market regimes, while the implied volatility and time-to-maturity inputs contributed intermittently to a lesser extent. During the COVID-19 crash, open interest gained more economic importance due to the increased behavioral tendencies of traders consistent with market distress.

On the impacts of allowance banking and the financial sector on the EU Emissions Trading System

The European Union Emissions Trading System (EU ETS) is the largest cap-and-trade system in the world. Price instability and allowance oversupply are two characteristics that affect the objectives and the efficiency of this policy. In this work, we investigate the impact of storing allowances (“banking”) on the allowance price and the power of the financial sector in the trading network of the ETS. To that end, we use data from the EU Transaction Log (EUTL) along with data on the most important allowance price determinants. We apply a multiple regression analysis that considers many important price determinants that are both endogenous and exogenous to the ETS, and quantify how the allowance price depends on the total volume of stored allowances. Our analysis indicates that banking is a notable—though not the dominant—price determinant, and quantifies its significance. Moreover, we study the role of financial nodes in the ETS trading network. Analyzing the betweenness centrality of financial, regulated, and governmental entities in the trading network of ETS over a period of more than 10 years, we provide strong evidence of the significant power of financial entities in the ETS trading network, which arises due to their role as intermediaries in allowance trading. Our work could provide the basis for a compact and relatively simple tool to evaluate and estimate the performance of one of the most prominent environmental policies, the EU ETS.

The role of the distribution platform in price formation of paid apps

In this paper we study the role of the distribution platform as an important determinant of price of paid apps. We also examine how the distribution platform influences the price implications of important developers' app-level decisions. To these purposes, we construct a hierarchical model of price formation by using an ad-hoc panel dataset consisting of top paid apps from the two major app stores, namely Apple's App Store and Google Play. Our findings show that prices of paid apps strongly depend on the platform where the apps are marketed. Specifically, the App Store is associated with lower prices for paid apps than Google Play. We find evidence that this is because the impact of cross-store differences in developer competition prevails over the impact of cross-store differences in average consumer willingness to pay. We also find that the price premiums as a return to trialability are more likely to emerge in Google Play than in the App Store, and that developers are more likely to adopt a penetration price policy in Google Play, thus implying an influence of the distribution platform on the price implications of these app-level decisions. Finally, our evidence does not confirm the argument that a more marked price reduction for paid apps embedding ads or generating revenues from other interested third parties should be observed in Google Play.

Hedging Costs vs. Counterparty Risk: What Explains the Pricing of Structured Products During the 2007-2009 Financial Crisis?

I test several hypotheses that may explain the asymmetric widening of the bid-ask spread driven by lower bid quotes of index structured retail products (SRPs) during the 2007-2009 financial crisis. In addition to index volatility, I identify issuer capitalization as the most important price determinant. Bid quotes from issuers with low equity ratios declined by 65% more than those of the remaining issuers. This drop is even greater in SRPs that do not face competition and that replicate riskier indices because of higher net selling pressure. The results suggest that capitalization of the issuer can influence SRP pricing.

Explaining regional variation in equilibrium real estate prices and income

We combine the real estate model of Potepan (1996) with the spatial equilibrium approach of Roback (1982) to prove the interdependency of housing prices, rental prices, building land prices and income via one simultaneous equilibrium analysis. Using unique cross-sectional data on the majority of German counties and cities for 2005, we estimate the equations in their structural and reduced form. The results show significantly positive interaction effects of income and real estate prices. Moreover, we can confirm model predictions concerning the majority of exogenous determinants. In particular, expectations about population development seem to be among the most important determinants of price and income disparities between regions in the long term.

Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors

Since Akerlof (1970), economists have understood the adverse selection problem that information asymmetries can create in used goods markets. The remarkable growth in online used goods auctions thus poses a puzzle. Part of the solution is that sellers voluntarily disclose their private information on the auction web page. This defines a precise contract -- to deliver the car shown for the closing price -- which helps protect the buyer from adverse selection. I test this theory using data from eBay Motors, finding that online disclosures are important price determinants, and that disclosure costs impact both the level of disclosure and prices. (JEL D44, D82, L81)

What Is the Value of Terroir?

We examine the value of terroir—the set of special characteristics of a location that impart unique qualities to the wine produced. We conduct a hedonic analysis of vineyard sales in the Willamette Valley of Oregon to ascertain whether site attributes—such as slope, aspect, elevation, and soil types—or designated appellations are more important determinants of price. We find that prices are strongly determined by appellation designations, but not by specific site attributes. These results indicate that the concept of terroir matters economically, but that the reality of terroir—as proxied by locational attributes—is not significant.

The Value of Terroir: Hedonic Estimation of Vineyard Sale Prices

We examine the value of terroir, which refers to the special characteristics of a place that impart unique qualities to the wine produced. We do this by conducting a hedonic analysis of vineyard sales in the Willamette Valley of Oregon to ascertain whether site attributes, such as slope, aspect, elevation, and soil types, or designated appellations are more important determinants of price. We find that prices are strongly determined by sub-AVA appellation designations, but not by specific site attributes. These results indicate that the concept of terroir matters economically, although the reality of terroir – as proxied for by locational attributes – is not significant.

Trading with Resilience: Parrotfish Trade and the Exploitation of Key-Ecosystem Processes in Coral Reefs

Parrotfish play two important roles in coral reef social–ecological systems; first as important sources of food for reef dependent people, and second by underpinning the ecological function of herbivory (i.e., grazing of algae) on coral reefs. Overfishing of herbivores can be detrimental to coral reef ecosystems because their removal may allow algae to outcompete corals. However, little is known about the drivers behind the exploitation of parrotfish. We describe the trade of parrotfish in Zanzibar with the aim to visualize the linkages between ecological function, market price, and socioeconomic drivers behind their exploitation. Three interesting findings emerge. First, parrotfish are an important part of the fish trade in Zanzibar and are traded at all market scales (from local consumers to international tourists). Second, size is an important determinant of price, with larger fish generating much higher values. Third, size determines which market parrotfish are sold to. Overall the study shows that all sizes of parrotfish are exposed to exploitation, leaving no size-refuge for escaping harvest. In light of an increasing global demand and high market prices, we thus propose that traditional fisheries management be complemented with assessments of both ecological understanding and socioeconomic dynamics to take into account of global market drivers behind parrotfish exploitation at local scales.

The Value of Terroir: Hedonic Estimation of Vineyard Sale Prices

AbstractWe examine the value of terroir, which refers to the special characteristics of a place that impart unique qualities to the wine produced. We do this by conducting a hedonic analysis of vineyard sales in the Willamette Valley of Oregon to ascertain whether site attributes, such as slope, aspect, elevation, and soil types, or designated appellations are more important determinants of price. We find that prices are strongly determined by sub-AVA appellation designations, but not by specific site attributes. These results indicate that the concept of terroir matters economically, although the reality of terroir – as proxied for by locational attributes – is not significant. (JEL Classification: C2, Q11)

The Value of Terroir: Hedonic Estimation of Vineyard Sale Prices

We examine the value of terroir, which refers to the special characteristics of a place that impart unique qualities to the wine produced. We do this by conducting a hedonic analysis of vineyard sales in the Willamette Valley of Oregon to ascertain whether site attributes, such as slope, aspect, elevation, and soil types, or designated appellations are more important determinants of price. We find that prices are strongly determined by sub-AVA appellation designations, but not by specific site attributes. These results indicate that the concept of terroir matters economically, although the reality of terroir – as proxied for by locational attributes – is not significant.

Impact of e-book technology: Ownership and market asymmetries in digital transformation

The book industry is undergoing a digital transformation enabled by the Internet and e-book technology, which offers a novel channel for delivering books to consumers who mostly purchase paper books from physical or online bookstores. With a game theory model that introduces the concepts of paper book market asymmetry and e-book market asymmetry, we examine how the entry of an e-book seller affects strategic interaction in the book markets and impacts sellers and consumers. We show that market asymmetries, ownership of the e-book seller, and consumers’ preferences for e-books are important determinants of prices, market shares and total book readership. We find that prices in the book market may increase after the e-book entry. Total readership may decrease after e-book entry, if the e-book seller is owned by one of the paper book sellers. The lowest total readership occurs when the online paper book seller owns the e-book seller.

Geographical Indications of Origin as a Tool of Product Differentiation: The Case of Coffee

An increasing interest in geographical indications of origin (GIs) as a tool of product differentiation can be observed in the so-called specialty coffee sector. Similar to the approach for wine in France and Italy, more and more coffee-producing countries try to establish appellation systems for coffee. Whereas some countries and regions such as Colombia or Jamaica have already legally protected GIs for coffee, most coffee GIs are still informal, meaning that no legal protection has been obtained so far. But the recent acceptation of the term Café de Colombia as a Protected Geographical Indication in the European Union and the Ethiopian Trademark Initiative document the increasing engagement of coffee-producing countries to achieve an appropriate legal protection for their GIs. From an economic point of view, data from U.S. online retail stores indicate that single-origin coffees receive significant higher retail prices, with 100% Kona coffee from Hawaii and Jamaican Blue Mountain coffee being the most expensive ones. Furthermore, results from a hedonic pricing model based on Internet auction data for single-origin coffees show that the country and the region of origin is already an important price determinant in the specialty coffee market.

Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors

Since Akerlof (1970), economists have understood the adverse selection problem that information asymmetries can create in used goods markets. The remarkable growth in online used goods auctions thus poses a puzzle. Part of the solution is that sellers voluntarily disclose their private information on the auction webpage. This defines a precise contract --- to deliver the car shown for the closing price --- which helps protect the buyer from adverse selection. I test this theory using data from eBay Motors, finding that online disclosures are important price determinants; and that disclosure costs impact both the level of disclosure and prices.

Traders’ preference for goat characteristics in selected markets of Pangasinan, Philippines

ABSTRACTPreference for goat characteristics was determined from 42 traders in six markets in Pangasinan, an important trading center for goats in Luzon, the Philippines, and analyzed using a hedonic price model to determine whether these characteristics are important price determinants of goats. This information is important to goat raisers to respond to the needs of the local market, and thus to achieve a better price and higher income in goat raising. Meatiness, size, breed, sex and age (in descending order) were the dominant goat characteristics preferred by traders. Meatiness had the largest positive influence on price, with a price premium of US$6.24 (US$1.00 = PhP 53), whereas the age of the animal had the smallest influence at US$3.72. However, size and meatiness are manifestations of good breeds. Therefore, continued efforts to improve breeds in order to produce good quality goats are imperative to cater to market needs. Different characteristics implied different price premiums. Traders offered a higher price premium for better goat characteristics; thus, the improvement of these characteristics could result in higher returns for goat raisers.

Alfalfa Hay Quality and Alternative Pricing Systems

Price-quality relationships for alfalfa hay were analyzed by hedonic pricing models using 1996-2001 Wisconsin auction data. Individual nutrients included in the analysis all affected alfalfa price, with acid detergent fiber accounting for the largest impact. Alternative pricing models, based on an aggregate quality index or detailed quality information, were similar in their ability to predict price. However, disaggregating price predictions to account for differences in relative feed value (RFV) and crude protein (CP) indicate that bothRFVandCPare important determinants of price and that aggregating the two into a quality index is not warranted.

Out of Sight, Out of Mind? Using GIS to Incorporate Visibility in Hedonic Property Value Models

<i>This paper uses GIS data to develop variables representing the physical extent and visibility of surrounding land use/cover features in a hedonic model of a rural/suburban residential housing market. Three equations are estimated to determine if views affect property prices and, further, if omission of visibility variables leads to omitted variable biases. To improve efficiency, first-order spatial autoregressive models are estimated. Results indicate that the visibility measures are important determinants of prices and that their exclusion may lead to incorrect conclusions regarding the significance and signs of other environmental variables.</i> (JEL Q21)

Stalking the “efficient price” in market microstructure specifications: an overview

In virtually all microstructure models, expectations of security payoffs are important determinants of prices and trading strategies. The principle that revisions to this expectation should be unpredictable implies a martingale property. This motivates empirical specifications in which the security price follows a random-walk plus transient disturbances that arise from the trading mechanism. This note is an overview of econometric approaches to characterizing the random-walk component in single- and multiple-price settings. Established techniques of random-walk decomposition provide useful characterizations of random-walk properties and (in the case of multiple markets) informational attributions. More general approaches based on the broader class of permanent/transitory decompositions suffer from problematic identification, a potential for misleading inference and lack of economic relevance.

The role of innovation and quality change in Japanese economic growth

This paper explores the use of time series data to isolate quality change in the Japanese economy using a hedonic procedure. We argue that the traditional approach to hedonic estimation based upon panel data sets of different brands in a given product area is extremely resource intensive and, thus, unlikely to be adopted by official statistical bodies outside of key areas, such as computers. This paper adopts a “top-down” approach to see whether more traditional measures of technical change, such as patents, can be used to separate pure inflation from quality change. If this is possible, it offers a much simpler route to estimate the role of quality change in economic growth and performance. In practice, we extend the analysis not only to include patents, but other forms of intellectual property that might reflect technology and attribute changes, such as designs, utility models and trademarks. We begin by taking a longer-term historical perspective, exploring the development of indigenous inventive capacity in Japan during the early years when R&D data are not available. It is possible to show that the rise in utility models pre-dates the main growth in patenting activity, suggesting the development in more low-level indigenous creative work prior to higher level inventive activity. The principal aim of this paper, however, is to demonstrate that it is possible to develop robust models to explain changes in the producer price index in Japan, which can then be used to re-examine Japanese growth performance over the period from about 1960. If the official Japanese statistical body has fully accounted for quality change in the price indices (i.e. produced fully quality-constant price deflators), then the official estimates of growth will be correct. However, we provide strong evidence that this is not the case. Changes in quality, proxied by the IP variables, are important determinants of prices in Japan over the period 1960 to 1995 as a whole. Indeed, we provide evidence that the true rate of growth of the Japanese economy, taking into account the rate of quality change, is significantly higher than that suggested in official statistics.

An Hedonic Price Model of New Housing in Indonesia

This study investigates the prices of new housing in the Greater Jakarta Metropolitan Area, Indonesia. Based on the average sale prices of 149 new housing projects launched between January and June 1997, the ANOVA statistical tool is used to test whether different sizes of development adopt the same hedonic pricing model. Following this, multiple regression analyses are conducted to identify the hedonic factors and their impacts on the new house prices in small, medium and large developments. The study concludes that small, medium, and large-sized developments do not adopt the same hedonic pricing model. With the exception of small-sized developments hedonic model in which structural, locational and neighborhood characteristics are important determinants of prices, the medium and large-sized development hedonic models showed that only locational attributes have significant impact on house prices.