Home • PRRES Inc. Journal • Read the Journal

Price Predictability and Capital Market Efficiency: Listed Property Trust Investment Strategies

Author/s: Vincent Peng

Date Published: 1/01/2004

Published in: Volume 10 - 2004 Issue 4 (pages 451 - 465)

Abstract

This study focuses on weak form EMH and investigates whether the Australian Listed Property Trust (LPT) market and broader equity market (All Ordinaries) are efficient in the weak form. It examines the daily closing price indices of LPTs and All Ordinaries for the period of 1 June 1992 to 30 May 2003. The results suggest that Australian LPTs and the broader equity markets are efficient in the weak form, and securities prices are not predictable based on historical price movements. The evidence of weak form efficiency has significant implications for investment strategies. It questions the relevance of technical analysis in the process of formulating investment/trading strategies. In the wake of questionable significance of technical analysis, this study provides active managers with suggestions for formulating investment strategies and investment decision making.

Download Full Article

Download the Full Article PDF

14445921.2004.11104171.pdf 14445921.2004.11104171.pdf (217kB)

Keywords

References

  • Dickey, D. and Fuller, W. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74, 427–431.
  • Baillie, R. and Bollerslev, T. (1989). Common stochastic trends in a system of exchange rates. Journal of Finance, 44:1, 167–181.
  • Chan, K., Gup, B. and Pan, M. (1997). International stock market efficiency and integration: a study of eighteen nations. Journal of Business Finance & Accounting, 24:6, 803–813.
  • Chan, K., Gup, B. and Pan, M. (1992a). An empirical analysis of stock prices in major Asian markets and the United States. Financial Review, 27:2, 289–307.
  • Chan, K., Gup, B. and Pan, M. (1992b). Market efficiency and cointegration tests for foreign currency futures markets. Journal of International Financial Markets, Institution & Money, 2:1, 78–89.
  • Chaudhry, M., Myer, F. and Webb, J. (1999). Stationarity and cointegration in systems with real estate and financial assets. Journal of Real Estate Finance and Economics, 18:3, 330–349.
  • Copeland, L. (1991). Cointegration tests with daily exchange rate data. Oxford Bulletin of Economics and Statistics, 3:2, 185–198.
  • Eng, O. (1995). Singapore real estate and property stocks – a co-integration test. Journal of Property Research, 12, 29–39.
  • Engle, R. and Granger, C. (1987). Co-integration, and error correction: representation, estimation and testing. Econometrica, 55:2, 251–276.
  • Fama, E. (1970). Efficient capital markets: a review of theory and empirical work. Journal of Finance, 25, 383–417.
  • Huang, B. (1995). Do Asian stock markets follow random walks? Evidence from the variance ratio test. Applied Financial Economics, 5, 251–256.
  • Johansen, S. (1995). Likelihood-based Inference in Cointegrated Vector Autoregressive Models. Oxford University Press.
  • Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59, 1551–1580.
  • Kendall, M. G. (1953). The analysis of economic time series – Part I: Prices. Journal of the Royal Statistical Society, 96, 11–25.
  • Kleiman, R., Payne, J. and Sahu, A. (2002). Random walks and market efficiency: evidence from international real estate markets. Journal of Real Estate Research, 24: 3, 279–297.
  • Lajaunie, J. and Naka, A. (1992). Is the Tokyo spot foreign market consistent with the efficient market hypothesis? Review of Financial Economics, 2:1, 68–74.
  • Lajaunie, J., McManis, B. and Naka, A. (1996). Further evidence on foreign exchange market efficiency: An application of cointegration tests. Financial Review, 31:3, 553–564.
  • Long, M., Payne, J. and Feng, C. (1999). Information transmission in the Shanghai equity market. Journal of Financial Research, 22:1, 29–45.
  • MacDonald, R and Taylor, M. (1989). Metal prices, efficiency and cointegration: some evidence from the London metal exchange. Bulletin of Economic Research, 40:3, 235–239.
  • MacDonald, R and Taylor, M. (1989). Foreign Exchange Market Efficiency and Cointegration: Some Evidence from the Recent Float. Economics Letters, 29, 63–68.
  • Myer, F., Chaudhry, M. and Webb, J. (1997). Stationarity and co-integration in systems with three national real estate indices. Journal of Real Estate Research, 13:3, 369–381.
  • Newell, G. and Webb, J. (1996). Assessing risk for international real estate investments. Journal ofReal Estate Research, 11:2, 103–115.
  • Okunev, J., Wilson, P. and Zurbruegg, R. (2002). Relationship between Australian real estate and stock market prices – a case of market inefficiency. Journal of Forecasting, 21:3, 181–192.
  • Peng, V. (2004). Capital market efficiency and listed property trusts return anomalies: implications for investment strategies. European Real Estate Society (ERES) Conference 2004, Milan, Italy, 2–5 June 2004.
  • Phillips, P. and Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75, 335–346.
  • Roberts, H. (1967). Statistical versus Clinical Prediction of the Stock Market. Working paper presented to the Seminar on the Analysis of Security Prices, University of Chicago.
  • Shilton, L. (2000). Random walks and the cointegration of the ACLI and NCREIF. Real Estate Economics, 28:3, 435–465.
  • Wilson, P., Gerlach, R. and Zurbruegg, R. (2003). Potential diversification benefits in the presence of unknown structural breaks: An Australian case study. Australian Economic Papers, 42, 442–453.
  • Wilson, P., Okunev, J. and Webb, J. (1998). Step interventions and market integration: tests in the U.S., U.K., and Australian property markets. Journal of Real Estate Finance and Economics, 16:1, 91–123.
  • Yang, J. and Leatham, D. (1998). Market efficiency of US grain markets: application of cointegration tests. Agribusiness, 14:2, 107–112.