PRICING AND RISK ANALYSIS OF SES LISTED PROPERTY COMPANIES
ONG LEE MING
ONG LEE MING
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Abstract
Investment in property is always perceived as a game for the
very big players who have the vast resources that cannot be
matched by the smaller investors. Coupled with the huge
capital outlay, other disadvantages such as iliquidity,
indivisibility, imperfect market and long searching process
are additional factors that inhibit the smaller players from
participating in property investments. This however does not
mean that the smaller investor is excluded from property
investment completely. They (smaller investors) can
participate indirectly by investing in the various property
counters listed on the Stock Exchange of Singapore (SES).
The decision to invest lies on the answers to these questions
: which company to invest in?, what is the risk to be
borne?, and what is the return to be expected?. Capital
Asset Pricing Model (CAPM), an equilibrium pricing model,
provides answers to these questions. Within the CAPM
framework, relationships between risk and return can be
derived. In addition, the beta coefficient and its
corresponding expected return based on the level of
systematic risk can be determined. This can help to determine
the extent of over or undervaluation of the companies in
questions.
It is hypothesised that there is no relationship between the
market return and the individual stock return (ß=0)and there
is no consistent underpricing of SES listed property
companies. However, such hypothesises are nullified with
empirical findings and the converse is true. This shows the
general applicability of the CAPM for the property sector
listed on the SES. It also shows in particular the usefulness
of this model in providing quick analysis in the field of
investment analysis without the lengthy analyses needed if
Stock Valuation models are used.
With the aid of the CAPM model, this study examines the
relative riskiness of the listed property companies by means
of the beta coefficients. The beta coefficients are then used
to examine the relative investment potential of the
companies. In term of investment potential with risk level
equalised, the following companies are recommended for
potential long term investments:
1. Bukit Sembawang Estates Limited,
2. City Developments Limited,
3. Singapore Land Limited and
4. Straits Steamship Land Limited.
Keywords
Capital Asset Pricing Model, Risk Analysis, Pricing Analysis, Property companies listed on SES
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Date
1991
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Type
Thesis