Please use this identifier to cite or link to this item: https://scholarbank.nus.edu.sg/handle/10635/223201
Title: PROPERTY STOCKS AS A PROXY TO RESIDENTIAL PROPERTY RETURNS AND ITS RETURN PREDICTABILITY
Authors: CHOO JIA CHEN MATTHEW
Keywords: Real Estate
Ong Seow Eng
RE
2017/2018 RE
Issue Date: 3-May-2018
Citation: CHOO JIA CHEN MATTHEW (2018-05-03). PROPERTY STOCKS AS A PROXY TO RESIDENTIAL PROPERTY RETURNS AND ITS RETURN PREDICTABILITY. ScholarBank@NUS Repository.
Abstract: This paper seeks to discern if property stocks are a good proxy to residential property returns and whether future returns of property stocks can be predicted. The long and short run contemporaneous relationship between property stocks and residential property returns are examined using the Engle and Granger (1987) two-step cointegration technique, with the estimated error correction model adopted as the predictive return regression model. A 12 month out-of-sample rolling window regression was thereafter conducted to test the existence of return predictability of property stocks. Using the FTSE ST Real Estate Index, a created stock index consisting of real estate developers with a presence in the residential property market in Singapore and the different SRX Property Index (SPI) proxies, it is found that returns of property stocks are cointegrated with residential property returns over the time period of January 2008 to December 2016. An error correcting mechanism also exists between the returns of property stocks and residential property returns signifying that both variables converge to equilibrium in the long run. As such, it is found that property stocks are a good proxy to residential property returns. In addition, return predictability for property stocks is found to exist when the SPI (CCR) proxy is utilised as the positive indicates that the forecasted returns outperform the historical benchmark model. The results of this study provide some useful lessons for investors as they could consider property stocks as a proxy to direct real estate returns. Moreover, the possible existence of return could benefit investors’ portfolio allocation and diversification.
URI: https://scholarbank.nus.edu.sg/handle/10635/223201
Appears in Collections:Bachelor's Theses

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