Performance of Property Companies in Hong Kong – A Style Analysis Approach

Journal of Real Estate Portfolio Management, Vol. 9, No. 1, pp. 29-44

29 Pages Posted: 2 Sep 2009

See all articles by K.W. Chau

K.W. Chau

The University of Hong Kong - Ronald Coase Centre for Property Rights Research - Economics

Siu Kei Wong

University of Hong Kong

Graeme Newell

Western Sydney University - School of Economics and Finance

Date Written: January 1, 2003

Abstract

Return-based style analysis is applied to identify the style benchmarks of 12 property companies in Hong Kong from 1984 through 2001, and their performance is then assessed. Unlike style analysis of mutual funds, the cash component is not constrained to be non-negative so as to reflect their debt-financed capital structures. The other feature of style analysis of property companies is the inclusion of direct property returns in the implied portfolio. This is achieved by transaction-based monthly property price indices over the period of observation. Our results suggest that the implied portfolio is able to explain an important part of the variation in the property companies’ returns. Although non-property investment has been the major component of the implied portfolio, the proportion of direct properties has increased over time. Therefore, property companies are becoming a closer substitute for direct property investment. One of the implications of the results is that investors can avoid the high transaction costs of direct property investment, but at the same time enjoy the liquidity and diversification benefits through investing in the shares of property companies.

Our results also suggest that the performance of most property companies is not significantly different from the performance of the underlying implied portfolio before transaction cost is taken into account. This implies that the overall performance of a property company is mainly attributable to investment style characterized by the implied portfolio rather than management skills.

Keywords: Hong Kong, Property companies, Selection return, Style analysis

Suggested Citation

Chau, Kwong Wing and Wong, Siu Kei and Newell, Graeme, Performance of Property Companies in Hong Kong – A Style Analysis Approach (January 1, 2003). Journal of Real Estate Portfolio Management, Vol. 9, No. 1, pp. 29-44, Available at SSRN: https://ssrn.com/abstract=1465177

Kwong Wing Chau

The University of Hong Kong - Ronald Coase Centre for Property Rights Research - Economics ( email )

Ronald Coase Centre for Property Rights Research
Pokfulam Road
Hong Kong
Hong Kong
(852)28592128 (Phone)
(852)25599457 (Fax)

Siu Kei Wong (Contact Author)

University of Hong Kong ( email )

Pokfulam Road
Hong Kong, HK
China

Graeme Newell

Western Sydney University - School of Economics and Finance ( email )

Locked Bag
Penrith South DC, NSW 1797
Australia

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