Application of the beta coefficient in the market of direct residential real estate investments

Abstract

The beta coefficient is one of the most popular indices used in contemporary finances. Despite the fact that there are justified doubts connected with its application, it is currently difficult to imagine a situation in which the cost of capital would be calculated without the use of the CAPM model. Thus, an attempt at answering the question whether and to what degree beta may be used in the real estate market constitutes an interesting problem. This is because on the one hand, the formal structure suggests that beta should not be used for assets which are not included in the benchmark but, on the other hand, such a benchmark should, at least theoretically, contain all market assets. Therefore, a decision was made to have a closer look at this issue, with the analysis of the possibility of using the beta coefficient in the residential real estate market set as the objective. Using the database of prices in the direct real estate investment created by the NBP, a comparison was conducted with regard to features of undertaken investments on the basis of an analysis of systematic risk calculated using selected indices available on the Polish market.