The long-term investment

The long-term investment - The research register for this...

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JPIF 19,2 156 Finance, Vol. 19 No. 2, 2001, pp. 156-174. # MCB University Press, 1463-578X Received May 2000 Revised November 2000 ACADEMIC PAPERS The long-term investment performance of Singapore real estate and property stocks Kim Hiang Liow Department of Real Estate, National University of Singapore, Singapore Keywords Financial performance, Real estate, Singapore, Investment Abstract Examines the investment performance of Singapore real estate and property stocks over the past 25 years. Evaluations using coefficient of variation (CV), Sharpe index (SI) and time-varying Jensen abnormal return index (JI) suggest that real estate outperformed property stocks on a risk-adjusted basis. Results also indicate that risk-adjusted investment performance for residential properties remained superior to performance for other real estate types and property stocks. Further analysis using time-varying JI reveals that the excess return performance of property stocks could differ significantly from that of direct properties, and performance of property stock led real estate market performance. Finally, the performance implications arising from the study are evaluated. Introduction Much has been written about the roles of direct properties and property stocks in the structure of a multi-asset portfolio. For example, Venmore-Rowland (1989) has pointed out that an investor with limited capital may consider the alternative of investing in property stocks as means of accessing direct property exposure without introducing excessive liquidity in his portfolio. With property stocks, opportunities for portfolio diversification become feasible, hence minimizing investment risks. On the other hand, direct properties have been reported to earn excess returns and provide a hedge against inflation (Glascock and Davidson, 1995). Hence, the comparison of risk-return performance of direct properties relative to property stocks continues to attract attention. The direct property market in Singapore is delineated broadly into residential, commercial and industrial markets. These markets have developed in tandem with the economy. Both the 1970s and 1980s experienced tremendous growth in the economy, to which commercial and industrial property developments contributed substantially. This rapid growth has continued into the mid-1990s, with property prices in the residential, office and industrial sectors having reached unprecedented peaks. The strong performance of direct properties has also been translated into higher profits and better performance return for many property stocks listed on the Singapore Stock Exchange (SGX). However, government’s policy to introduce several anti-speculation measures at residential properties in May 1996 and the Asian financial crisis that hit the Singapore economy since July 1997 have caused prices of different property sectors and property stocks to decline substantially. The research register for this journal is available at
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The long-term investment - The research register for this...

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