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Shall we buy and hold? Evidence from Asian real estate markets

Eddie Hui (Department of Building and Real Estate, The Hong Kong Polytechnic University, Kowloon, Hong Kong)
Philip Yam (Department of Statistics, The Chinese University of Hong Kong, Shatin, Hong Kong)
John Wright (Department of Statistics, The Chinese University of Hong Kong, Shatin, Hong Kong)
Kevin Chan (Department of Building and Real Estate, The Hong Kong Polytechnic University, Kowloon, Hong Kong)

Journal of Property Investment & Finance

ISSN: 1463-578X

Article publication date: 25 February 2014

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Abstract

Purpose

The purpose of this study is to verify whether the trading strategy can beat the “buy-and-hold” strategy for the securitized real estate indices of six Asian economies: Hong Kong, China, Japan, Taiwan, Thailand and Malaysia.

Design/methodology/approach

This paper constructs a trading strategy from the Shiryaev-Zhou index and tests the strategy on the securitized real estate indices of six emerging Asian economies: Hong Kong, China, Japan, Taiwan, Thailand and Malaysia. The authors compare the resulting profits from using the trading strategy with the resulting profits from using the “buy-and-hold” strategy. The authors consider three cases: no transaction costs, 0.1 percent transaction costs, and 0.2 percent transaction costs.

Findings

The results show that the trading strategy the authors constructed generally outperforms the “buy-and-hold” strategy even in the presence of transaction costs. In particular, the authors have a new finding as follows: Thailand and Malaysia's securitized real estate indices fell drastically during the period of observation. However, applying the trading strategy to these two securitized real estate indices can still earn a profit.

Practical implications

The trading strategy is particularly useful in protecting investors from huge loss in adverse market conditions. The results can be applied to the field of finance/investment that investors can construct a trading strategy similar to the authors to earn more profits.

Originality/value

This study will consider cases where both buying and selling costs exist, so the scenario is more like stock transactions in real-life equity markets. Furthermore, in this paper, for each securitized real estate index, the authors plot a graph to show the holding and non-holding periods under the trading strategy. This would help the authors explain the resulting profit under the trading strategy. This kind of graphical analysis was neglected by Hui and Yam.

Keywords

Acknowledgements

The authors are grateful for the financial support from the PolyU Internal Research Grants (Project No. 4-ZZC1, 4-ZZC4, 4-ZZC8 and G-YK32). Phillip Yam also acknowledges the financial supports from The Hong Kong RGC GRF 404012 with the project title “Advance Topics in Multivariate Risk Management in Finance and Insurance”, and The Chinese University of Hong Kong Direct Grant 2011/2012 Project ID 2060444. Phillip Yam also expresses his sincere gratitude to the hospitality of Hausdorff Center of Mathematics of University of Bonn for his fruitful stay in Hausdorff Trimester Program with title: “Stochastic Dynamics in Economics and Finance”.

Citation

Hui, E., Yam, P., Wright, J. and Chan, K. (2014), "Shall we buy and hold? Evidence from Asian real estate markets", Journal of Property Investment & Finance, Vol. 32 No. 2, pp. 168-186. https://doi.org/10.1108/JPIF-09-2013-0059

Publisher

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Emerald Group Publishing Limited

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