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Which Capital Growth Index for the Paris Residential Market?

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  • M. Baroni
  • F. Barthélémy
  • M. Mokrane

Abstract

In this paper we address the issue of measuring price performance for the Paris residential market. Our main focus is on choosing the appropiate index or indices capable of efficiently capturing capital growth, capital risk, and identifying the main risk factors inherent in this specific market.We identifying three existing indices but show that they may not be completely appropriate to address our main goals. We therefore construct two complementary repeat sales indices: a Case & Shiller (1987) Weighted Repeat sales (WRS) index and a Factorial index using the Baroni, Barthélémy & Mokhrane (2001) approach. We use the CD-BIEN database that contains more than 220 000 repeta sales transactions for residential properties in Paris area covering the period 1983-2001 period.We estimate these two indices for the Paris and close surrounding area and compare them to different existing indices: (I) the square metre index provides by the Chambre des Notaires de Paris and INSEE, (II) the IDP indices, (III) the listed real estate index. OUR conclusions yield interesting implications concerning real estate risk and suggest the construction of jointly using the repeat sales and the factorial approaches

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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2004-04.

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Date of creation: 2004
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Handle: RePEc:ema:worpap:2004-04

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  1. Karl E. Case & Robert J. Shiller, 1987. "Prices of Single Family Homes Since 1970: New Indexes for Four Cities," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 851, Cowles Foundation for Research in Economics, Yale University.
  2. Joseph Gyourko & Donald B. Keim, . "What Does the Stock Market Tell Us About Real Estate Returns? (Revised: 11-92)," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 18-91, Wharton School Rodney L. White Center for Financial Research.
  3. David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," NBER Working Papers 8143, National Bureau of Economic Research, Inc.
  4. Goetzmann, W.N., 1990. "The Accuracy Of Real Estimate Indices: Repeat Sale Estimators," Papers, Columbia - Graduate School of Business fb-_90-17, Columbia - Graduate School of Business.
  5. Neil Crosby & Anthony Lavers & Henry Foster, 1998. "Commercial property loan valuations in the UK: implications of current trends in valuation practice and legal liability," Journal of Property Research, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(3), pages 183-209, January.
  6. David M. Geltner, 1993. "Estimating Market Values from Appraised Values without Assuming an Efficient Market," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 8(3), pages 325-346.
  7. Gatzlaff, Dean H & Haurin, Donald R, 1997. "Sample Selection Bias and Repeat-Sales Index Estimates," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 14(1-2), pages 33-50, Jan.-Marc.
  8. Mokrane, Mahdi & Baroni, Michel, 2001. "Physical Real Estate : Risk Factors and Investor Behaviour," ERES, European Real Estate Society (ERES) eres2001_236, European Real Estate Society (ERES).
  9. Englund, Peter & Quigley, John M. & Redfearn, Christian L., 1998. "Improved Price Indexes for Real Estate: Measuring the Course of Swedish Housing Prices," Journal of Urban Economics, Elsevier, vol. 44(2), pages 171-196, September.
  10. 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.
  11. 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, Springer, vol. 14(1-2), pages 51-73, Jan.-Marc.
  12. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, American Economic Association, vol. 79(1), pages 125-37, March.
  13. Brown, Gerald R & Matysiak, George A, 2000. "Sticky Valuations, Aggregation Effects, and Property Indices," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 20(1), pages 49-66, January.
  14. Quan, Daniel C & Quigley, John M, 1991. "Price Formation and the Appraisal Function in Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 4(2), pages 127-46, June.
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