The performance of property companies in Hong Kong : a style analysis approach
The Performance of Property Companies in Hong Kong:
A Style Analysis Approach
Wong Sill Kei
for the degree of Doctor of Philosophy at The University of Hong Kong
in January 2003
Style analysis has become a popular tool for evaluating the performance of investment funds as a result of increasingly specialized investment styles. This study applies the returns-based approach to identifying the investment styles and assessing the performance of property companies in Hong Kong from 1984 through 2001. The original style model has been modified to take into account the differences between mutual funds and listed property companies. The modifications include the addition of direct property asset classes and the relaxation of no-leverage constraint. The former is achieved by developing an age-adjusted repeat-sales model to construct monthly transaction-based property price indices.
Two style models were built: a non-property model (without direct property asset classes) and a property model (with direct property asset classes). The results from the non-property model showed that although the implied non-property asset mix was able to explain an important part (75%) of the variation in the property companies' returns, a small pure property component was found in the company returns. This component can be realized through hedging the indirect property index by its implied non-property asset mix.
The results from the property model indicate that property company returns reflect residential and industrial performance better than retail and office performance. Moreover, the proportion of direct property has increased over time, indicating that property companies are becoming a closer substitute for direct property investment. The implication is that investors can avoid the high transaction costs of direct property investment, but at the same time enjoy the liquidity and diversification benefits through investing in the shares of property companies. There are, however, some inconsistencies between implied and actual property asset mixes which may be due to high correlation between some asset classes.
The results of the style analysis of the major listed property companies in Hong Kong do not support the presence of active management skill over time, and thus the market is efficient. This implies that the overall performance of a property company is mainly attributable to investment style characterized by the implied portfolio rather than management skill. The variation in the selection returns of a larger sample of property companies is much more significant and can be partially explained by a number of company characteristics including company size, gearing ratio, liquidity, dividends issued, directors' stakes, and directors' fees.
School:The University of Hong Kong
School Location:China - Hong Kong SAR
Source Type:Master's Thesis
Keywords:real estate business finance china hong kong investment econometric models
Date of Publication:01/01/2003