The influence of real estate price fluctuations on real estate stocks

Abstract

With background to recent price growth in Swedish real estate and consequently real estate stocks, our aim is to examine the relationship between real estate price development and real estate stock price development. To test our hypothesis, that real estate price development have had an impact on the return of real estate stocks, we built a capital asset pricing model. We divide the return of real estate stocks into two parts, the return in relation to the Swedish market premium and the excess return that is given for the exposure of the real estate market. We found that real estate exposure would treat the investor with an additional return beyond the return given from stock market exposure; hence, real estate price development has contributed to real estate stock returns.