A PCA Factor Repeat Sales Index (1973-2001) To Forecast Apartment Prices in Paris (France)

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A PCA Factor Repeat Sales Index (1973-2001) To Forecast Apartment Prices in Paris (France)

Author Info

Baroni, Michel () (ESSEC Business School)
Barthélémy, Fabrice () (THEMA, Université de Cergy-Pontoise)
Mokrane, Mahdi () (IXIS-AEW Europe)

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Abstract

In this paper we address the issue of building a repeat sales index, based on factors. This is an extension of a companion paper, Baroni, Barthélémy and Mokrane (2001, BBM) in which we had built a factorial index as a selected linear function of existing economics and financial variables. Here we offer a more general and robust model based on a Principal Components Analysis (PCA). We apply this methodology to the Paris residential market. We use the CD-BIEN database that contains more than 220 000 repeat sales transactions for residential apartments in the Paris area covering the period 1973-2001 period. Our PCA index for the Paris and close surrounding area is estimated and its characteristics and robustness are analysed depending on: estimation period, choice of observations, periodicity and reversibility. We then compare it to the traditional WRS repeat sales index developed by Case & Shiller (1987). Finally we show that contrary to the WRS index, our index can be used to forecast apartment prices.

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Paper provided by ESSEC Research Center, ESSEC Business School in its series ESSEC Working Papers with number DR 05002.

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Length: 36 pages
Date of creation: Feb 2005
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Handle: RePEc:ebg:essewp:dr-05002

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Find related papers by JEL classification:
C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
G00 - Financial Economics - - General - - - General

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-02-20 (All new papers)

References listed on IDEAS
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Brown, Gerald R & Matysiak, George A, 2000. "Sticky Valuations, Aggregation Effects, and Property Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 20(1), pages 49-66, January. [Downloadable!] (restricted)
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. [Downloadable!] (restricted)

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