SWEDISH REAL ESTATE AS A HEDGE AGAINST INFLATION : - With comparison to stocks, bonds and gold

Abstract: The objective of this research is to analyze residential, unsecuritized and securitized real estates’ ability to hedge inflation in Sweden and compare it to stocks’, bonds’ and gold’s ability to hedge inflation.This research is based on both descriptive statistical and econometric analysis methodology with use of both quarterly and annual data series. First are the correlations between assets and actual, expected and unexpected inflation analyzed. Inflation betas are then estimated for all assets based on an ordinary least square model. The results indicate that, during the researched period 1993-2011, none of the studied exposures of real estate are a hedge against actual, expected nor unexpected inflation. As expected the results also indicate that both stocks and bonds have a negative relation to inflation, while gold seems to be a partial hedge against inflation. However, all inflation betas have a low R square and low statistical significance in general. Real estate in Sweden is not a hedge against inflation as it traditionally is perceived to be and real estate returns might be driven by business cycles, accessibility to financing and expectations of interest rates rather than inflation.