nep-fmk New Economics Papers
on Financial Markets
Issue of 2014‒08‒02
four papers chosen by
Kwang Soo Cheong
Johns Hopkins University

  1. Cross-sector fund performance comparison: the role of real estate mutual funds By Zhao, Yuan
  2. Liquidity and Asset pricing: Evidence from the European Real Estate Stock Market By Lang, Stephan; Scholz, Alexander
  3. Liquidity Premiums in the Global Listed Real Estate Sector 2002-2012. An Analysis of Size and Importance under Dynamic Market Conditions By Moss, Alex; Lux, Nicole
  4. The Underpricing of Infrastructure IPOs: Evidence from China By Tan, Qile; Dimovski, Bill

  1. By: Zhao, Yuan
    Abstract: We firstly examine the performance of active sector funds as a whole as equal- and value-weighted portfolios, against a stock market benchmark (Carhart four-factor model), an associated sector market benchmark, and the combined five-factor model benchmarks. We consider the gross and net returns to show the impact of expenses on performance. We also employ the residual bootstrap approach for portfolios to separate genuine skills from luck. We also look into individual sector fund managers, to examine the proportion of truly skilled sector fund managers after false discoveries have been controlled using false discovery rate (FDR) approach. Among all 13 sectors, most sector fund managers on average cannot add enough to cover expenses irrespective of benchmarks. We find mediocre performance on real estate mutual funds (REMFs), comparing with funds of other sectors. Weak evidence of outperformance relative to sector index is found in sectors of gold, and consumer services, even after deduction of expenses. Healthcare and technology sectors, as a whole, can marginally beat the stock market. When the combined sector and stock market benchmark is employed, funds of health care and technology oriented sectors overall can still outperform after costs. Finally, at each sector fund level, we implement joint test to control false discoveries from false positive-alpha funds, and find limited proportion of skilled sector fund managers, after costs.
    Date: 2014
  2. By: Lang, Stephan; Scholz, Alexander
    Abstract: The purpose of this paper is to provide evidence of the ability of liquidity to serve as a systematic risk factor in real estate asset pricing models in Europe. Using general equity data of 8.500 listed European firms, we construct 18 portfolios by a three-sequential, independent sorting procedure (Size, B/M and Liquidity) to compute the common risk factors SMB and HML as proposed by Fama and French (1993) as well as a liquidity risk factor. Our empirical findings suggest that liquidity is a significant pricing factor in real estate stock returns after accounting for the established asset pricing factors. These results are robust to conditional market tests and possible country effects. Furthermore, we run a comparative analysis with alternative multifactor models and prove that the liquidity-augmented pricing model is most appropriate for explaining real estate stock returns.
    Date: 2013
  3. By: Moss, Alex; Lux, Nicole
    Abstract: Purpose - The purpose of this paper is to quantify the changes in the liquidity premium for the real estate equities markets of the United States, Europe and Asia during the period of 2002 – 2012. The liquidity crisis of 2007-8 had a dramatic impact on returns, valuations and capital raising abilities of the listed real estate sector globally, and the paper focuses on understanding and explaining relative liquidity premiums under dynamic market conditions.Design/methodology/approach - Market liquidity is measured in each market, U.S, Europe and Asia by analysing liquidity in three different dimensions of tightness, depth and resilience. We calculate percentage bid-ask spread as a measure of market tightness, market depth is given by the Hui-Heubel (HH) liquidity ratio (Hui and Heubel, 1984), while resilience refers to the speed at which the price fluctuations resulting from trades are dissipated using a Market-efficient coefficient (MEC) (Hasbrouck and Schwartz, 1988). The company data sample groups securities into large, medium and small market capitalisations across each of the three regions.Finally the dependency of real estate firm liquidity with other securities market indicators is measured in each market, U.S, Europe, Asia by constructing the Hui-Heubel liquidity ratio on a selection of key companies and correlating this with the VIX index. A higher HH ratio indicates higher price to volume sensitivity. Findings - In all three markets bid-ask spreads reduced significantly, and market liquidity and efficiency increased during the period of 2002 – 2007. Since that date the results have a more regional bias, and we examine the reasons behind this. The MEC confirms that European companies exhibit lower levels of liquidity than their US counterparts, and this a contributing factor behind periods of relative underperformance. We discovered a high correlation between market correlation and the VIX Index.Originality/value - The results provide important clues for investors and real estate companies in pricing liquidity throughout the cycle and illustrates the regional differences over the period. This has important implications for investors regarding the pricing of risk, and absolute and relative returns, and for companies, in terms of capital raising ability. In addition the finding of the close relationship between RE stocks liquidity and the VIX index confirms the importance of equity market influences on public real estate valuations.
    Date: 2013
  4. By: Tan, Qile; Dimovski, Bill
    Abstract: This study investigates the underpricing of 154 infrastructure IPOs in China from 1993 to 2012. It follows infrastructure IPO studies in Australia and India which report average underpricing returns to subscribers of 3.5% and 25.4% respectively. The average underpricing return for Chinese infrastructure IPOs is substantially higher at 91.1% but interestingly substantially lower than the underpricing of Chinese IPOs generally. The issue size, the offer price, the time delay to listing and the broad market return from the date of the prospectus to the date of listing are helpful in explaining the underpricing of Chinese infrastructure IPOs. Government ownership retention and underwriter reputation do not appear to have much explanatory power.
    Date: 2013

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