Smoothing, Nonsynchronous Appraisal and Cross-Sectional Aggregation in Real Estate Price Indices
AbstractIn this article three econometric issues related to private-equity return indices, such as real estate indices, are explored (smoothing, nonsynchronous appraisal and cross-sectional aggregation). Under certain assumptions, it is found that index returns based on appraisals follow an ARFIMA(1, d, 1) (autoregressive fractionally integrated moving average) process, where the long memory parameter (d) explains the level of smoothing and the AR and MA parameters represent the level of persistence in marketwide fundamentals and the nonsynchronous appraisal, respectively. The empirical results show that: (1) the level of smoothing in appraisal-based real estate indices is far less than assumed in many academic studies (2) there is weak evidence of nonsynchronous appraisal in the UK, IPD (Investment Property Databank) index and (3) marketwide fundamentals are highly persistent for the IPD index returns. On the other hand, there is no evidence of nonsynchronous appraisal or a persistent common factor in the U.S. NCREIF (National Council of Real Estate Investment Fiduciaries) index. Copyright 2007 American Real Estate and Urban Economics Association
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Bibliographic InfoArticle provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.
Volume (Year): 35 (2007)
Issue (Month): 3 (09)
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- Soosung Hwang & Shaun Bond, 2005. "Smoothing, Nonsynchronous Appraisal and Cross-Sectional Aggreagation in Real Estate Price Indices," Working Papers wp05-17, Warwick Business School, Financial Econometrics Research Centre.
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- Shaun Bond & Paul Mitchell, 2010. "Alpha and Persistence in Real Estate Fund Performance," The Journal of Real Estate Finance and Economics, Springer, vol. 41(1), pages 53-79, July.
- Cheng, Ping & Lin, Zhenguo & Liu, Yingchun, 2010. "Illiquidity, transaction cost, and optimal holding period for real estate: Theory and application," Journal of Housing Economics, Elsevier, vol. 19(2), pages 109-118, June.
- Shaun Bond & Soosung Hwang & Zhenguo Lin & Kerry Vandell, 2007. "Marketing Period Risk in a Portfolio Context: Theory and Empirical Estimates from the UK Commercial Real Estate Market," The Journal of Real Estate Finance and Economics, Springer, vol. 34(4), pages 447-461, May.
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