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商学院申请:MIT 金融经济学PhD申请案例

Research Proposal for MIT Sloan Ph.D. in Financial Economics

The Effect of Institutional Variables on the Pricing Margin of Real Estates in China


Motivation:

In China, institutional differences among provinces are significant. Some institutional differences may account for the economic differences such as the pricing of real estates. If the marketization index, an institutional variable that systematically affects the pricing margins of real estates, we must understand the effects produced and the mechanisms at work. Theoretically speaking, the more market-oriented a province is, the less is pricing margin between the property price and the land cost. There are several reasons to explain this. First, if a province is more market-oriented, the real estate market must be closer to a complete market; therefore, the profit margin of the real estate firms should be smaller. Second, if a province is more market-oriented, the corruption of the government should be less severe; consequently there should be fewer taxes and other fees imposed on the property. This should also lead to a smaller pricing margin.

Gathering Data:

1.NERI Index of Marketization of China’s Provinces, and 5 Sub-indices:
       •   The relationship between government and market;
       •   The development of Non-State-Owned Economy;
       •   The development of market of productions;
       •   The development of market of elements; and
       •   The development of market intermediaries, legal system environment
Source: the Annual Book “NERI index of marketization of China's Provinces Report 20xx” by Fan Gang and others.

2. A Detailed Database about China’s Real Estate Market in Recent Years:
       •   Variables of lands include price, plot ratio, address (province, city, and detailed), date of transaction, winner of the land, planning
            use, area (the land, the construction,) lifetime of ownership, etc;
       •   Variables of properties include price (lowest, highest, average), address (city, district, and detailed), property type, building type,
            sales type, plot ratio, area, developers, date (construction started, completion, sale started, owner moved in), and the decoration,
            etc.
Sources: a Database Bought from the GTA Data Company

Preliminary Research:

1. Clearing the Data
    To match the land and the property on a basis of district, I used the excel VBA writing a macro to extract from the detailed addresses
     of lands the information about the districts of the lands. I did manual searching for hints from other variables such as the “Land
     Code” to get the district information if it is not implied in the “detailed address”. And using the “plot ratio” and “area” of the land,
     I got the price of lands per square meter and the price of properties. These data are used to get the average price of lands and of
     properties in a given district.

2. Preliminary Regression
    The dependent variable is the margin between the average land price of a district and the average property price of that district. The
     independent variable is the marketization index. Regression result is significant but contradictory to our expectation that the greater
     the marketization index, the smaller the pricing margins.

3. Refining Regression
    By adding the construction cost as a control variable, we have obtained a significant and negative coefficient of the marketization
     index; this is consistent with our expectation.

4. Searching for References
    I am currently searching for existent research papers on the pricing of real estates to gain a better and deeper understanding of the
     mechanism of pricing the real estates. I hope to make reference to the contributions that other researchers have made to this field
     of study. By reviewing “Journal of Finance”, and “Real Estates Economics”, I have found not much literature similar to ours that focus
     on the investigation of the institutional factors in the pricing of real estates. Nevertheless, the papers we have collected do provide
     some interesting perspectives for understanding the pricing of real estates such as the demand, the supply, and other environmental
     considerations. They are will be quite useful to our research.

Research Plan
1. Adding more control variables and performing perceptive analysis. In the preliminary regression, we left out variables that describe
    the characteristics of the property and the lands. Yet, these variables are important in explaining the pricing of the property, such as
    the date of transaction, the length of the ownership of lands, the date, the property type, the building type and the decoration of
    properties. We also left out some other supply-and-demand factors such as the income of citizens, the mortgage, the environment
    around the properties, and the vacancy rate of the new properties, etc. By adding these variables (type and year variables as
    dummies), our econometric model may become more powerful in explaining the relationship we want to investigate between the
    institutions and the pricing, thus better reflecting such a relationship.

2. There are five sub-indices of marketization index which can be used as independent variables to indicate the institutional situations in
    a more detailed manner, such as “the relationship between government and market”, “the development of non-state-owned
    economy”, “the development of market intermediaries”, and “the system environment of the legal system”.

3. Although we try to include all the relevant supply and demand factors, we still risk omitting some variables in a simple regression
    model. We plan to do Instrumental Variable Estimation to confirm the results.

4. I intend to construct a model based on the basic supply-and-demand model to explain the mechanisms behind the pricing of real
    estates, taking the institutional differences into full consideration. To do this, I plan to refer to the models constructed by economists
    on the pricing of the real estates and on the political economics so as to shed light on the equilibrium of the real estates market under
    supply and demand and on the institutional impact on economy, respectively. The scholarly journals I would refer to include: the
    Journal of Finance, the Journal of Financial Economics, the Journal of Business, the Journal of Financial Studies, Real Estate Economics,
    AREUEA, Journal of Real Estate Finance & Economics, Journal of Real Estate Research, Journal of Urban Economics, Journal of
    Regional Science, Regional Science& Urban Economics, and Journal of Political Economy, etc.

 

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