whole_LockeStuart1987_thesis.pdf (11.64 MB)
The capital asset pricing model and real estate investment analysis
thesisposted on 2023-05-26, 21:57 authored by Locke, S
The research reported upon in this thesis consists of two parts. First, a discussion of the theoretical development of the capital asset pricing model and its applications, as reviewed in the finance literature, is presented. Second, a detailed empirical investigation into the applicability of the model to various aspects of the analysis of real estate investment is undertaken. CAPM is presented as a framework for the analysis of competing investment choices in an uncertain world. The theoretical development is traced from a single period consumption or defer consumption problem in state preference theory, through to the obtaining of maximum utility from a portfolio of assets in a world of uncertainty. The model is next demonstrated with regard to its use for tests of information efficiency in the market, the evaluation of investment projects and the assessment of investment performance. Extensive testing of the capital asset pricing model has been undertaken in the financial securities markets. It is also included as a fundamental component of most corporate finance texts concerned with project investment analysis and the monitoring or assessment of the performance of portfolios of financial .securities. Developments, refinements and alternative models discussed within the literature, which result from the ongoing research efforts in these areas, are summarized. Almost all of the empirical testing and applications of the capital asset pricing model discussed in the finance literature are concerned with financial securities. This is a little surprising in the light of the generality of the model in its theoretical form. However, data availability, in the form of share price files for various stock markets, is very likely a major contributing factor for the predominant concentration of research in the equities section of the asset market. Applicability of the capital asset pricing model to the property market is considered next. Real estate transaction information is reviewed and a number of simplifications and abstractions from what is conceptually desirable are explained. Data files for the empirical experiments undertaken are compiled from a number of sources. While the lack of price and return information may have inhibited earlier research into the usefulness of the capital asset pricing model for real estate investment analysis, it may also result in the model being inappropriate. This possibility is considered in detail. The link between the capital asset pricing model and information is examined by empirical tests of the three forms of the efficient market hypothesis. First, the weak form and the distributional properties of the returns are analysed. Second, the semi-strong form is investigated with an announcement effect study. Third, the strong form is considered with an examination of portfolio performance. The theoretical justification for applying the model to specific applications is dependent upon the level at which the efficient market hypothesis is accepted. Real estate provides a new area for considering the relative pricing of an asset in an equilibrium framework known as the capital asset pricing model. The research reported makes a useful contribution to capital market finance by empirically testing, in a thorough statistical manner, the applicability of a general theory to a significant submarket of the Australian asset market viz, the real estate (property) market.
Rights statementCopyright 1986 the author - The University is continuing to endeavour to trace the copyright owner(s) and in the meantime this item has been reproduced here in good faith. We would be pleased to hear from the copyright owner(s). Thesis (Ph.D.)--University of Tasmania, 1987. Bibliography: leaves 257-275