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


  • Shiller, Robert J


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. Copyright 1993 by American Finance Association.

Suggested Citation

  • Shiller, Robert J, 1993. " Measuring Asset Values for Cash Settlement in Derivative Markets: Hedonic Repeated Measures Indices and Perpetual Futures," Journal of Finance, American Finance Association, vol. 48(3), pages 911-931, July.
  • Handle: RePEc:bla:jfinan:v:48:y:1993:i:3:p:911-31

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    References listed on IDEAS

    1. Robert J. Shiller, 1991. "Arithmetic Repeat Sales Price Estimators," Cowles Foundation Discussion Papers 971, Cowles Foundation for Research in Economics, Yale University.
    2. 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.
    3. 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 357-374, December.
    4. 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.
    5. 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 125-137, March.
    6. 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.
    7. Paul H. Kupiec, 1989. "A survey of exchange-traded basket instruments," Finance and Economics Discussion Series 62, Board of Governors of the Federal Reserve System (U.S.).
    8. 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.
    9. 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.
    10. 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.
    11. Adam K. Gehr Jr., 1988. "Undated futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 8(1), pages 89-97, February.
    12. 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.
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    Cited by:

    1. Frank Fabozzi & Robert Shiller & Radu Tunaru, 2009. "Property Derivatives for Managing European Real-Estate Risk," Yale School of Management Working Papers amz2652, Yale School of Management, revised 01 Sep 2009.
    2. Robert J. Shiller, 1997. "Expanding the Scope of Individual Risk Management: Moral Hazard and Other Behavioral Considerations," Cowles Foundation Discussion Papers 1145, Cowles Foundation for Research in Economics, Yale University.
    3. Shiller, Robert J & Schneider, Ryan, 1998. "Labor Income Indices Designed for Use in Contracts Promoting Income Risk Management," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 44(2), pages 163-182, June.
    4. Bernard Thion & Tatiana Bouzdine Chameeva, 2001. "Comparative Analysis of Several Models of Price Indices in Real Estate Transactions," ERES eres2001_285, European Real Estate Society (ERES).
    5. Athanasoulis, S. & Shiller, R.J., 1995. "World Income Components: Measuring and Exploting International Risk Sharing Opportunities," Papers 725, Yale - Economic Growth Center.
    6. 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.
    7. Huang, Kevin X. D., 2002. "On infinite-horizon minimum-cost hedging under cone constraints," Journal of Economic Dynamics and Control, Elsevier, vol. 27(2), pages 283-301, December.
    8. Bourassa, Steven C. & Hoesli, Martin & Sun, Jian, 2006. "A simple alternative house price index method," Journal of Housing Economics, Elsevier, vol. 15(1), pages 80-97, March.
    9. Shiller, Robert J., 1995. "Aggregate income risks and hedging mechanisms," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(2), pages 119-152.
    10. James Hansen, 2006. "Australian House Prices: A Comparison of Hedonic and Repeat-sales Measures," RBA Research Discussion Papers rdp2006-03, Reserve Bank of Australia.
    11. Athanasoulis, Stefano G. & Shiller, Robert J., 2002. "Defining residual risk-sharing opportunities: Pooling world income components," Research in Economics, Elsevier, vol. 56(1), pages 61-84, June.
    12. Bradford Case & Susan Wachter, 2005. "Residential real estate price indices as financial soundness indicators: methodological issues," BIS Papers chapters,in: Bank for International Settlements (ed.), Real estate indicators and financial stability, volume 21, pages 197-211 Bank for International Settlements.
    13. Clapp, John M. & Giaccotto, Carmelo, 1998. "Residential Hedonic Models: A Rational Expectations Approach to Age Effects," Journal of Urban Economics, Elsevier, vol. 44(3), pages 415-437, November.
    14. Robert J. Shiller, 2008. "Derivatives Markets for Home Prices," Cowles Foundation Discussion Papers 1648, Cowles Foundation for Research in Economics, Yale University.
    15. Mick Silver, 2016. "How to Better Measure Hedonic Residential Property Price Indexes," IMF Working Papers 16/213, International Monetary Fund.
    16. Robert J. Hill & Daniel Melser, 2007. "Comparing House Prices Across Regions and Time: An Hedonic Approach," Discussion Papers 2007-33, School of Economics, The University of New South Wales.
    17. Bin, Okmyung, 2004. "A prediction comparison of housing sales prices by parametric versus semi-parametric regressions," Journal of Housing Economics, Elsevier, vol. 13(1), pages 68-84, March.
    18. Eric Clapham & Peter Englund & John M. Quigley & Christian L. Redfearn, 2004. "Revisiting the Past: Revision in Repeat Sales and Hedonic Indexes of House Prices," Working Paper 8594, USC Lusk Center for Real Estate.

    More about this item

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing


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