Asset pricing and risk evaluation in the housing market : An empirical analysis of the Swedish housing market

Abstract: During the recent years, the Swedish housing market has developed into a topic of major interest, both domestically and internationally. The sky-rocketing prices, the uprising demand together with the housing shortage, and the market bubble ongoing debate, have resulted in the discussion of risk being more relevant than ever before. Literature is vast and knowledge is still gained, as recent research is seeking for answers about where the market is headed towards. This study intends to provide a new perspective regarding risk as a factor in the housing market. Based on the classical portfolio theory, an asset pricing approach in the Swedish housing market is presented. By applying modern quantitative methods, this thesis analyses the results of several models in the Swedish housing market and tries to establish a relationship between different market segments and the overall market. The goal is to determine: (1) the risk factor reflected by the market segments towards the overall market, (2) the evolution of the risk factor through time, (3) the way the market segments affect and cause each other, and finally (4) the response of the market segments against market shocks. The results provide a new insight on the risk factor and the mechanics defining the Swedish housing market. This could work as a useful tool in a new approach regarding the real estate market analysis, from a developer’s perspective.