THE PRICE DISCOVERY OF SINGAPORE REITS

Abstract

Investments in the Singapore Real Estate existed only in the form of property stocks before July 2002. The listing of the retail Capitamall Trust (CMT) and Ascendas REIT (A-REIT) which achieved annual dividend yields of approximately 7%, provided investors in Singapore with a new investment alternative which is passive, indirect and can traded conveniently just like any listed company stock. Since the majority of investors are interested in "beating the market" and consistently earn abnormally high returns, this research will examine whether the REITs in the Singapore equity market is efficient in the semi-strong form or consistent with the random walk hypothesis. Statistical results indicated inefficiency in the semi-strong form for the Singapore REIT market which is consistent with findings from the U.S. Both REITs exhibited price behaviours which are significantly affected by events and announcements but refuted the random walk hypothesis. Prices of the REITs are also found to be dependent on previous day's price and had strong correlations with the Straits Times Index. In conclusion, investors may find it difficult to reap exception diversification benefits by adding REITs into their portfolio as the semi efficient market would rapidly react to any abnormal excess earnings. Any additional projected earnings would already had been incorporated, discounted and reflected in present prices.