This study investigates the determinants and predictability of listed property returns in South Africa based on the framework developed by Eugene Fama and Kenneth French. The study tests four asset pricing models, including the Capital Asset Pricing Model (CAPM) developed by Sharpe (1964) and Lintner (1965), the Fama and French (1993) 3-Factor model, a model which adds the South African Bond Index to the CAPM and finally a model which includes macroeconomic, market and firm specific factors. The empirical analysis makes use of macro-economic data and returns data of various portfolios of South African listed property stocks created based on a ranking of specific style factors. The style variables are size, momentum, liquidity, dividend yield, price to NAV, earnings yield, dividend growth, average cost of debt, loan to value ratio and the interest coverage ratio. The data was extracted from INET and the Muller and Ward (2015) data base which was subsequently updated by Shapiro (2016). The data sample extends over a 20-year period from January 1996 to December 2015. Ordinary least squares regression is used to determine the appropriateness of each of the four models. Furthermore, because these relationships change over time, a 5-year rolling regression analysis is used to understand the relationships over time. The results suggest that the Capital Asset Pricing Model, the Fama and French (1993) 3-Factor model and the CAPM plus Bond Factor model do not fully explain the patterns of expected return of the South African listed property index. However, the All Factor model is able to fully capture the pattern of expected return of the South African listed property index. Furthermore, the results suggest that the South African listed property sector is less volatile and therefore relatively less risky than the overall stock market. Furthermore, the evidence suggests that that listed property behaves more like bonds than equity over the sample period. The research provides empirical evidence of a positive relationship between South African listed property returns and size, dividend yield and momentum is found. In addition, it is found that South African listed property returns are negatively related to the price to net asset value ratio. This suggests that South African listed property tends to revert to a long term mean net asset value. The analysis of the performance of active trading strategies shows that once transactions costs are included none of the strategies are able to outperform a passive investment strategy. In addition, the study finds that there is no statistically significant difference between active and passive returns. Therefore, it is concluded that the South African listed property sector is efficient and profitable arbitrage opportunities should not exist.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uct/oai:localhost:11427/27393 |
| Date | January 2017 |
| Creators | Ramjee, Anil |
| Contributors | Evans, Kathleen |
| Publisher | University of Cape Town, Faculty of Engineering and the Built Environment, Department of Construction Economics and Management |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Master Thesis, Masters, MSc (Eng) |
| Format | application/pdf |
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