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Heterogeneous Information and Appraisal Smoothing

Author

Listed:
  • Ping Cheng

    (Florida Atlantic University)

  • Zhenguo Lin

    (Mississippi State University)

  • Yingchun Liu

    (Laval University)

Abstract

This study examines the heterogeneous appraiser behavior and its implication on the traditional appraisal smoothing theory. We show that the partial adjustment model is consistent with the traditional appraisal smoothing argument only when all the appraisers choose the same smoothing technique. However, if appraiser behavior is heterogeneous and exhibits cross-sectional variation due to the difference in their access to, and interpretation of information, the model actually leads to a mixed outcome: The variance of the appraisal-based returns can be higher or lower than the variance of transaction-based return depending on the degree of such heterogeneity. Using data from the residential market, we find that, contrary to what the traditional appraisal smoothing theory would predict, appraisal-based indices may not suffer any “smoothing†bias. These findings suggest that the traditional appraisal smoothing theory, which fails to consider the heterogeneity of appraiser behaviors, exaggerates the effect of appraisal smoothing.

Suggested Citation

  • Ping Cheng & Zhenguo Lin & Yingchun Liu, 2011. "Heterogeneous Information and Appraisal Smoothing," Journal of Real Estate Research, American Real Estate Society, vol. 33(4), pages 443-470.
    • Handle: RePEc:jre:issued:v:33:n:4:2011:p:443-470
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    Citations

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    Cited by:

    1. Mei, Bin, 2015. "Illiquidity and risk of commercial timberland assets in the United States," Journal of Forest Economics, Elsevier, vol. 21(2), pages 67-78.
    2. William G. Hardin & Xiaoquan Jiang & Zhonghua Wu, 2017. "Inflation Illusion, Expertise and Commercial Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 55(3), pages 345-369, October.
    3. Alain Chaney & Martin Hoesli, 2015. "Transaction-Based and Appraisal-Based Capitalization Rate Determinants," International Real Estate Review, Global Social Science Institute, vol. 18(1), pages 1-43.

    More about this item

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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