Book Description

The role of legal origin was first introduced in the Law and Finance Literature by La Porta et al. (1997) in an original study of legal determinants of external finance. Their study is timely given that investor protection is crucial because in many countries, expropriation of minority shareholders and creditors by controlling shareholders or corporate insiders is extensive. This dissertation intends to replicate the original La Porta et al. (1997) study for Property stocks in 23 countries whose legal jurisdictions falls into the four of the legal fraternities established by La Porta namely, English, French, German and Scandinavian. The primary motivations for this thesis, is that the Property stocks broadly captures several critical aspects of the original La Porta study. Specifically, Property stocks are very tangible assets that can easily be collateralised due to the direct property underpinning the net asset backing of Property stocks. The end result of this research endeavour is to provide a framework for institutional portfolio investors to determine the appropriate countries whose real estate markets have the most favourable investor climate to facilitate a more attractive environment for institutional investors given the Means Variance Optimisation (MVO) methodology. A tactical asset allocation strategy will be employed to determine the three stages that a global investor should undertake to arrive at the optimum proportions of funds to invest in Common stocks or Real Estate stocks in any country firstly based on an Emerging/Developed country analysis then secondly, a geographic Regional analysis and finally on Legal Origin analysis to distil the appropriate proportions of funds that should be invested. This Dissertation has three original contributions, which are as follows: 1) An Empirical investigation of role of Legal origin on the performance of Real Estate stocks within the context of a tactical asset allocation strategy. This dissertation studies the impact that Developed versus Emerging, Regional markets and Legal Origin jurisdictions have on the results of the optimal MVO portfolios (based on the highest Sharpe ratio) and presents the research findings of this study, at the Primary, Secondary and Tertiary levels. This dissertation is envisaged to fill the research gap between legal origin and the performance of Property stocks across four legal fraternities in 23 countries and make an original contribution in the Law & Finance and Portfolio Management Literature. 2) ACTIVE (Ex-Ante) versus PASSIVE (naïve) portfolio management strategy. The original contribution is the application of this methodology to property stocks specifically within a Legal Origin and Regional market framework. Data is collated from 1984 to 2003 (20 years inclusive) from 23 countries with specific reference to the Common and Real Estate stocks markets therein. A 5 year rolling Ex-Post analysis is computed to determine the optimum allocation weights in a multi-asset portfolio and subsequently an Ex-Ante analysis (next immediate year) of the portfolio weights applied to an Actively managed portfolio. This portfolio will be compared with actual portfolio performance from 1989 to 2002 (fifteen subsequent years) to determine whether the Ex-ANTE methodology which underpinned the Active management strategy is preferred over a Passive (equal investment in each asset class) strategy for real estate stocks portfolio management. The Ex-Ante analysis will be undertaken at two stages: Firstly, Legal Origin markets and Secondly, Regional markets. 3) A replication of the Gordon et al. (1995) study which determined the appropriate percentage based on the Markowitz Portfolio Theory (MPT) that should be invested in the Real Estate stock markets in 14 countries. The original contribution is the application of Gordon s methodology to the Legal Origin markets proposed by La Porta et al. (1997). This research study encompasses 23 c