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The capital asset pricing model and real estate investment analysis


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Locke, S (1987) The capital asset pricing model and real estate investment analysis. PhD thesis, University of Tasmania.

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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
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.

Item Type: Thesis (PhD)
Keywords: Capital assets pricing model, Real estate investment
Copyright Information:

Copyright 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).

Additional Information:

Thesis (Ph.D.)--University of Tasmania, 1987. Bibliography: leaves 257-275

Date Deposited: 19 Dec 2014 02:31
Last Modified: 09 Jan 2017 22:42
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