CPF APPROVED RESIDENTIAL PROPERTIES SCHEME ANNOUNCEMENTS AND PROPERTY STOCKS : A MULTIVARIATE EVENT STUDY

Abstract

The Central Provident Fund (CPF) primarily provides for old-age security. Over time, various schemes have been introduced to make better use of the CPF. The Approved Residential Properties Scheme (ARPS) is but one such scheme. While it can be readily expected that the ARPS affects the property market, especially the residential sector, its effects on stock market are not as clear. Previous studies have established some relationships between the property and stock markets. Correlation analysis of the two markets carried out in the preliminaries of this dissertation provided the basis for the study of the effects of the ARPS on property stocks. This dissertation aims to study the abnormal returns of property listed companies of the Stock Exchange of Singapore (SES) as a result of the announcement of policies relating to the CPF ARPS, using the Multivariate Regression Model (MVRM) methodology. In finance literature, stock market data are widely used to examine the effect of financial and economic events on firm value. The SES All-Share Price Index, SES All-Property Price Index and individual share prices are used here. Research of this nature is generally classified as an "event study". The traditional event study methodology is a two-step procedure where the expected market return is determined before the abnormal returns are calculated as the difference between actual and expected returns. The MVRM methodology adopted dispenses with the two-step procedure with the use of dummy variables. Invariably, event studies also provide evidence of the Efficient Market Hypothesis. Thus this study also measures the efficiency of the stock market. The preliminaries revealed that the share prices of the property listed companies had a high positive correlation with the property market especially in sectors which the property company predominantly invests its funds in. With respect to the event study, only one, out of the six events, produced compelling evidence of significant abnormal returns resulting from the announcement. Rather than concluding that the announcements lacked information content, the market was thought to lack the level of sophistication needed to process the information contained in these announcements. The efficiency of the stock market could then only be described, at best, as weak-form.