What Moves Multiples? Macroeconomic Factors and Listed Real Estate Firms in Scandinavia

Abstract

This study examines how macroeconomic factors affect valuation multiples, specifically the price-to-book (P/B) and price-to-earnings (P/E) ratios, for publicly listed real estate firms in Scandinavia. Using quarterly data from 2010 to 2025, the analysis focuses on the impact of key macroeconomic variables, including interest rates, inflation, GDP growth, and unemployment. The theoretical framework combines the Dividend Discount Model (DDM) and Arbitrage Pricing Theory (APT) to motivate the inclusion of both macroeconomic and firm-level determinants of valuation. The empirical analysis employs panel data methods to estimate how these factors are associated with changes in valuation multiples. The results show that interest rates, inflation, and GDP growth are significantly associated with both P/E and P/B, although the direction and magnitude of the effects differ. Interest rates are negatively associated with P/B, consistent with valuation theory, but show a positive relationship with P/E. Inflation is negatively related to both multiples, while GDP growth is positively associated with P/B but marginally negative for P/E. Unemployment does not show a statistically significant effect. As a more asset-based valuation measure, P/B is commonly used for real estate firms and other asset-intensive industries, and the results suggest that it provides a more theoretically consistent and empirically robust indicator of how macroeconomic risk is reflected in valuation. In contrast, P/E appears to be more influenced by short-term earnings dynamics. Overall, the findings highlight the importance of distinguishing between valuation multiples, as they capture different underlying economic mechanisms.