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Market Risk Factor and the Weighted Repeated Sales Method

Author

Listed:
  • Ping Cheng

    (Florida Atlantic University)

  • Xin He

    (Dongbei University of Finance and Economics)

  • Zhenguo Lin

    (California State University, Fullerton)

  • Yingchun Liu

    (Laval University)

Abstract

This paper identifies a critical issue in the Weighted Repeated Sales (WRS) method - the omission of market risk in the weight estimation model specified by Case and Shiller (1989). It demonstrates that the omission of market risk is conceptually unjustified. Through extensive examination of the real estate market risk, the study not only proposes a modified WRS model that is empirically supported, but also contributes to the broad discussion on the holding period dependence of real estate risk. It also shows that the Case-Shiller weighting method is likely to be mis-specified in nine of the ten cities where the Case-Shiller metro indices are "tradable" with housing options and futures contracts listed on the Chicago Mercantile Exchange. Using a large sample of repeated sales from Washington DC area, the original repeated sales method of Bailey, Muth, and Nourse (1963) and the Case-Shiller method are compared against the modified WRS, and the results indicate that market risk plays an important role in the index estimation.

Suggested Citation

  • Ping Cheng & Xin He & Zhenguo Lin & Yingchun Liu, 2015. "Market Risk Factor and the Weighted Repeated Sales Method," Journal of Real Estate Research, American Real Estate Society, vol. 37(1), pages 1-22.
    • Handle: RePEc:jre:issued:v:37:n:1:2015:p:1-22
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    Cited by:

    1. Zhou, Zhengyi, 2016. "Overreaction to policy changes in the housing market: Evidence from Shanghai," Regional Science and Urban Economics, Elsevier, vol. 58(C), pages 26-41.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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