By Stefan Grob, student MSc Banking and Finance
During the second semester of their education, the students developed their own academic papers intended to seamlessly tie in with existing academic literature in their respective fields. The group works were presented during the last week of classes. Per student, the workload was equivalent to some 180 hours (6 ECTS points). Students were able to select their favourite topic from 18 different subjects and to also submit their own proposals for a subject. This enables students to focus on topics they are interested in. To provide some insights into student life, we will present two papers as examples.
Can real estate investments serve as a hedge against inflation?
The Swiss Central Bank aims to achieve an inflation target of 0% to 2%. Last year, inflation was 0.8%. A group made up of three students used co-integration analyses to investigate how well real estate investments are suited as a hedge against inflation. If a long-term balance exists in between two time series, this is called co-integration. In the process, variables are allowed to deviate from the balance for a short period of time. Yet at least one of the variables will over time adapt in such a way that the long-term balance is re-established.
The group found that for the period from 2000 to 2017, Swiss real estate investments were suitable as a hedge against inflation. Investing directly in flats in particular were able to dissipate any shocks relatively quickly. Examining this over a longer observation period (1970 to 2017) though, it was not possible to empirically prove that Swiss real estate investments could act as a hedge against inflation.
Diversification potential of investments into the Swiss real estate market
The market volume of the Swiss real estate market is approximately twice the size of the Swiss share market volume. This underlines the relevance of the real estate market. With institutional investors (for instance pension funds) in particular, real estate has become indispensable from their portfolios. The student group therefore aimed to demonstrate how much diversification potential real estate investments had within the different market phases in comparison with such asset classes as bonds and shares. The group discovered that any kind of real estate is highly suited to diversify a portfolio. Compared to bonds, direct real estate investments and indirect investments in investment vehicles demonstrate the best potential for diversification. In accordance with the group’s presentation, these findings can be observed both with sideways- and upwards-trending market phases.
Concluding the academic year
Following on from their respective presentations, both students and lecturers were free to ask questions pertaining to these presentations. In this manner, listeners were able to obtain some further insights into the results and critically scrutinise what was presented. On this warm evening, the class headed straight for Lake Zug once the last lecture before the summer holidays had finished. They proceeded to toast the end of the semester with cold drinks during these warm temperatures.