Index Revision, House Price Risk, and the Market for House Price Derivatives
AbstractIt is widely recognized that options and futures markets for housing can reduce and manage the risks inherent in consumersÃ¢â¬â¢ large investments in housing equity. The integrity of such markets depends, however, upon the use of transparent and replicable benchmarks for house prices and settlement values. In the USA, a series of state and metropolitan indexes have been produced by a government agency (the US Office of Housing Enterprise Oversight, OFHEO), and they have been widely disseminated for over a decade. By construction, the entire historical path of each of these indexes is, in principle, subject to revision quarterly, that is, every time the index is recalculated and data are published. This paper provides the first analysis of the magnitude and bias of these revisions, and it analyzes their systematic effects on the settlement prices in housing options markets. The paper considers the implications of these magnitudes for the development of risk-reducing futures markets.
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Bibliographic InfoArticle provided by Springer in its journal The Journal of Real Estate Finance and Economics.
Volume (Year): 37 (2008)
Issue (Month): 3 (October)
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Web page: http://www.springerlink.com/link.asp?id=102945
Repeat sales index; Index revision; House price risk; House price derivative; G11; R21; G13;
Other versions of this item:
- Deng, Yongheng & Quigley, John M., 2008. "Index Revision, House Price Risk, and the Market for House Price Derivatives," Berkeley Program on Housing and Urban Policy, Working Paper Series qt4sw0x30t, Berkeley Program on Housing and Urban Policy.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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