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Measuring Asset Values for Cash Settlement in Derivative Markets: Hedonic Repeated Measures Indices and Perpetual Futures

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Abstract

Two proposals are made that may facilitate the creation of derivative market instruments, such as futures contracts, cash-settled based on economic indices. The first proposal concerns index number construction: indices based on infrequent measurements of nonstandardized items may control for quality change by using a hedonic repeated measures method, an index number construction method that follows individual assets or subjects through time and also takes account of measured quality variables. The second proposal is to establish markets for perpetual claims on cash flows matching indices of dividends or rents. Such markets may help us to measure the prices of the assets generating these dividends or rents even when the underlying asset prices are difficult or impossible to observe directly. A perpetual futures contract is proposed that would cash settle every day in terms of both the change in the futures price and the dividend or rent index for that day.

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File URL: http://cowles.econ.yale.edu/P/cd/d10a/d1036.pdf
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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1036.

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Length: 35 pages
Date of creation: Nov 1992
Date of revision:
Publication status: Published in Journal of Finance (June 1993), 48(3): 911-931
Handle: RePEc:cwl:cwldpp:1036

Note: CFP 856.
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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  1. Karl E. Case & Robert J. Shiller & Allan N. Weiss, 1991. "Index-Based Futures and Options Markets in Real Estate," Cowles Foundation Discussion Papers 1006, Cowles Foundation for Research in Economics, Yale University.
  2. Palmquist, Raymond B., 1979. "Hedonic price and depreciation indexes for residential housing: A comment," Journal of Urban Economics, Elsevier, vol. 6(2), pages 267-271, April.
  3. Goetzmann, William Nelson, 1992. "The Accuracy of Real Estate Indices: Repeat Sale Estimators," The Journal of Real Estate Finance and Economics, Springer, vol. 5(1), pages 5-53, March.
  4. Robert J. Shiller, 1991. "Arithmetic Repeat Sales Price Estimators," Cowles Foundation Discussion Papers 971, Cowles Foundation for Research in Economics, Yale University.
  5. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  6. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, vol. 79(1), pages 125-37, March.
  7. Cox, John C. & Ingersoll, Jonathan Jr. & Ross, Stephen A., 1981. "The relation between forward prices and futures prices," Journal of Financial Economics, Elsevier, vol. 9(4), pages 321-346, December.
  8. Bradford Case & Henry O. Pollakowski & Susan M. Wachter, 1991. "On Choosing Among House Price Index Methodologies," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 286-307.
  9. Case, Bradford & Quigley, John M, 1991. "The Dynamics of Real Estate Prices," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 50-58, February.
  10. Clapp, John M & Giaccotto, Carmelo, 1992. "Estimating Price Trends for Residential Property: A Comparison of Repeat Sales and Assessed Value Methods," The Journal of Real Estate Finance and Economics, Springer, vol. 5(4), pages 357-74, December.
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