Exploring Beta’s Changing Behavior ofSwedish Real Estate Stocks

Abstract: This study aims to analyze the beta and risk behavior of the Swedish listed real estate stocks. Such a study will provide a clearer picture for investors and researchers about the changing nature of that behavior over time. The research method is based on descriptive statistics and CAPM beta regression analysis of the monthly returns. Correlation analysis is employed to identify diversification benefits within the sector stocks. In order to understand the behavior of beta/riskiness over time, the stationary and time-varying beta estimations are conducted using CAPM market excess-return model and rolling windows technique. In this investigation, the time period from 2003 to 2012 is analyzed. The results reveal that a) the betas of real estate stocks are asymmetric over time such that their values are higher during market upturns than in market downturns, b) the betas for the various types of real estate stocks are different, and c) there are low correlation coefficients among returns of real estate stocks, and within the various property type stock groups. While the real estate stock index as a whole is highly correlated to the market and has relatively stable betas over time, there are diversification benefits among Swedish real estate stocks. Hence, understanding the changing behaviors of beta over time of the various property type stocks can help investors optimize their market timing and cost of capital expectations according to the investment horizon. It is important to notice that a lot of capital for real estate equity investments in Sweden is allocated through non-traded private equity real estate funds. Therefore, transforming these private funds into real estate traded funds might add the data depth and the market efficiency necessary for better research validity and investment optimization. There are currently very few traded real estate securities in the Swedish market.