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The Bias of the RSR Estimator and the Accuracy of Some Alternatives

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Author Info
William N. Goetzmann () (Yale University, School of Management)
Liang Peng () (Department of Finance)

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Abstract

This paper analyzes the implications of cross-sectional hetero- skedasticity in repeat sales regression (RSR). RSR estimators are essentially geometric averages of individual asset returns because of the logarithmic transformation of price relatives. We show that the cross sectional variance of asset returns affects the magnitude of bias in the average return estimate for that period, while reducing the bias for the surrounding periods. It is not easy to use an approximation method to correct the bias problem. We suggest a maximum-likelihood alternative to the RSR that directly estimates index returns that are analogous to the RSR estimators but are arithmetic averages of individual returns. Simulations show that these estimators are robust to time-varying cross-sectional variance and may be more accurate than RSR and some alternative methods of RSR.

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Publisher Info
Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm174.

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Date of creation: 08 Feb 2001
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Handle: RePEc:ysm:somwrk:ysm174

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Related research
Keywords: Repeat sales estimators; Real estate index; Simulation;

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Find related papers by JEL classification:
R10 - Urban, Rural, and Regional Economics - - General Regional Economics - - - General
R31 - Urban, Rural, and Regional Economics - - Production Analysis and Firm Location - - - Housing Supply and Markets
C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation

References listed on IDEAS
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  1. Jesse M. Abraham & William S. Schauman, 1991. "New Evidence on Home Prices from Freddie Mac Repeat Sales," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 333-352. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jianping Mei & Michael Moses, 2002. "Art as an Investment and the Underperformance of Masterpieces," American Economic Review, American Economic Association, vol. 92(5), pages 1656-1668, December. [Downloadable!]
  2. James Pesando & Pauline Shum, 2007. "The law of one price, noise and “irrational exuberance”: the auction market for Picasso prints," Journal of Cultural Economics, Springer, vol. 31(4), pages 263-277, December. [Downloadable!] (restricted)
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