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Quantifying the reversibility phenomenon for the repeat-sales index

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  • Arnaud Simon

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    (Universit?Paris Dauphine Place du Maréchal de Lattre-de-Tassigny, 75775 Paris Cedex 16)

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    Abstract

    The reversibility phenomenon in the repeat-sales index is a serious obstacle for derivatives products. This article provides a solution for this problem, using an informational reformulation of the RSI framework. We present first a theoretical formula (simple, easy to interpret, and easy to handle) and then implement it. For the derivatives our technique has strong implications for the choice of underlying index and contract settlement. Even if reversibility of the RSI is probably higher compared with the hedonic approach, this index remains a challenger because of the predictability and quantifiability of its revisions.

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    File URL: http://aux.zicklin.baruch.cuny.edu/jrer/papers/pdf/past/vol31n01/02.27_62.pdf
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    Bibliographic Info

    Article provided by American Real Estate Society in its journal journal of Real Estate Research.

    Volume (Year): 31 (2009)
    Issue (Month): 1 ()
    Pages: 27-62

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    Handle: RePEc:jre:issued:v:31:n:1:2009:p:27-62

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    Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
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    Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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    1. Meese, Richard A & Wallace, Nancy E, 1997. "The Construction of Residential Housing Price Indices: A Comparison of Repeat-Sales, Hedonic-Regression and Hybrid Approaches," The Journal of Real Estate Finance and Economics, Springer, vol. 14(1-2), pages 51-73, Jan.-Marc.
    2. Baroni, Michel & Barthélémy, Fabrice & Mokrane, Mahdi, 2004. "Physical Real Estate. A Paris Repeat Sales Residential Index," ERES eres2004_105, European Real Estate Society (ERES).
    3. Karl E. Case & Robert J. Shiller, 1988. "The Efficiency of the Market for Single-Family Homes," NBER Working Papers 2506, National Bureau of Economic Research, Inc.
    4. Karl E. Case & Robert J. Shiller, 1987. "Prices of single-family homes since 1970: new indexes for four cities," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 45-56.
    5. John M. Clapp & Carmelo Giaccotto, 1999. "Revisions in Repeat-Sales Price Indexes: Here Today, Gone Tomorrow?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(1), pages 79-104.
    6. Yongheng Deng & John Quigley, 2008. "Index Revision, House Price Risk, and the Market for House Price Derivatives," The Journal of Real Estate Finance and Economics, Springer, vol. 37(3), pages 191-209, October.
    7. Hoesli, Martin & Giaccotto, Carmelo & Favarger, Philippe, 1997. "Three New Real Estate Price Indices for Geneva, Switzerland," The Journal of Real Estate Finance and Economics, Springer, vol. 15(1), pages 93-109, July.
    8. Deng, Yongheng & Quigley, John M. & Van Order, Robert, 1999. "Mortgage Terminations, Heterogeneity, and the Exercise of Mortgage Options," Berkeley Program on Housing and Urban Policy, Working Paper Series qt96r560pg, Berkeley Program on Housing and Urban Policy.
    9. Eric Clapham & Peter Englund & John M. Quigley & Christian L. Redfearn, 2006. "Revisiting the Past and Settling the Score: Index Revision for House Price Derivatives," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(2), pages 275-302, 06.
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    Cited by:
    1. Song Shi & Martin Young & Bob Hargreaves, 2010. "House Price-Volume Dynamics: Evidence from 12 Cities in New Zealand," Journal of Real Estate Research, American Real Estate Society, vol. 32(1), pages 75-100.

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