SINGAPORE REIT SHARE PRICES AND NAV : NOISE OR INFORMATION?

Abstract

Considerable research effort has been devoted to explaining the departures of REIT share prices from the NAVs. However, there have been few papers that use Asian REITs as the primary subject of study. This dissertation therefore aims to examine the factors that cause REITs to trade at either a premium or a discount to NAV in Singapore. Singapore’s REIT market is the second largest REIT market in Asia (after Japan), in terms of the number of REITs and the total market capitalization. Singapore is a perfect candidate to test the noise and information theories, as its REIT market has experienced both the down and the up periods. The empirical results show that market capitalization, monthly volatility, institutional ownership, sector focus, and effective spread significantly impact the REIT premia in Singapore. However, the results differ, when the samples are separated into two sub-periods: up market and down market. Price to book ratios appear to be a good substitute for the NAV premium/discount variable, given the strong correlation between the two time series. The dissertation further shows that the noise and information hypotheses are rejected in the Singapore’s REIT market. Last but not least, the financial crisis is shown to have a strong negative effect on the premium to NAV of Singapore REITs. The efficient market hypothesis, however, is also rejected in the Singapore’s REIT market.