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Temporal Aggregation in Repeated Sales Models

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  • Dag Sommervoll

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Abstract

Over the years, repeated sales models have come to wide and even commercial use. However, considering the subset of dwellings sold twice entail several challenges. Small sample problems constitute a special concern in repeated sales models, since sample sizes tend to be smaller than hedonic methods based on all transactions in a given period of time. Moreover, a cluster of observations in one time period does not only influence the index corresponding to that particular time period, but all other estimated indexes. A simulation approach is used to study the interplay between sample size and temporal aggregation. The analysis shows that serious mis-measurements may occur even in cases where the statistical diagnostic tools like R 2 and t-values and empiric standard deviations indicate good explanatory power. However, the risk of serious biases driven by sparse data sets tends to be small, even if the actual estimated price curve show signs of under-smoothing. Mis-measured curves have unstable estimates with respect to temporal aggregation. Two repeated models, one with a slightly finer time partition achieved by adding one more time dummy, used on the same sample can alter the index estimate at a given time with as much at 10–15%. The simulations reveal that varying temporal aggregation is a powerful diagnostic tool and should be employed routinely. The last part of the paper shows that choosing an appropriate temporal aggregation involves more than merely a balance between under-smoothing and over-smoothing. Efficiency questions tend to be better addressed by a higher temporal aggregation, than a good overall estimation of the price curve alone calls for. Copyright Springer Science + Business Media, LLC 2006

Suggested Citation

  • Dag Sommervoll, 2006. "Temporal Aggregation in Repeated Sales Models," The Journal of Real Estate Finance and Economics, Springer, vol. 33(2), pages 151-165, September.
  • Handle: RePEc:kap:jrefec:v:33:y:2006:i:2:p:151-165
    DOI: 10.1007/s11146-006-8946-1
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    References listed on IDEAS

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    1. Goodman, Allen C. & Thibodeau, Thomas G., 2003. "Housing market segmentation and hedonic prediction accuracy," Journal of Housing Economics, Elsevier, vol. 12(3), pages 181-201, September.
    2. Case, Bradford & Pollakowski, Henry O & Wachter, Susan M, 1997. "Frequency of Transaction and House Price Modeling," The Journal of Real Estate Finance and Economics, Springer, vol. 14(1-2), pages 173-187, Jan.-Marc.
    3. Bourassa, Steven C. & Hoesli, Martin & Peng, Vincent S., 2003. "Do housing submarkets really matter?," Journal of Housing Economics, Elsevier, vol. 12(1), pages 12-28, March.
    4. Quigley, John M., 2006. "Urban Economics," Berkeley Program on Housing and Urban Policy, Working Paper Series qt0jr0p2tk, Berkeley Program on Housing and Urban Policy.
    5. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    6. Englund, Peter & Quigley, John M & Redfearn, Christian L, 1999. "The Choice of Methodology for Computing Housing Price Indexes: Comparisons of Temporal Aggregation and Sample Definition," The Journal of Real Estate Finance and Economics, Springer, vol. 19(2), pages 91-112, September.
    7. Dombrow, Jonathan & Knight, J R & Sirmans, C F, 1997. "Aggregation Bias in Repeat-Sales Indices," The Journal of Real Estate Finance and Economics, Springer, vol. 14(1-2), pages 75-88, Jan.-Marc.
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    Citations

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    Cited by:

    1. Dubé, Jean & Rosiers, François Des & Thériault, Marius & Dib, Patricia, 2011. "Economic impact of a supply change in mass transit in urban areas: A Canadian example," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(1), pages 46-62, January.
    2. Felix Schindler, 2014. "Persistence and Predictability in UK House Price Movements," The Journal of Real Estate Finance and Economics, Springer, vol. 48(1), pages 132-163, January.
    3. Røed Larsen, Erling & Weum, Steffen, 2008. "Testing the efficiency of the Norwegian housing market," Journal of Urban Economics, Elsevier, vol. 64(2), pages 510-517, September.
    4. Dag Einar Sommervoll & Gavin Wood, 2011. "Home equity insurance," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(1), pages 66-85, April.
    5. Dag Einar Sommervoll & Jan de Haan, 2014. "Homes and Castles: Should We Care about Idiosyncratic Risk?," Land Economics, University of Wisconsin Press, vol. 90(4), pages 700-716.
    6. James Bugden, 2014. "Quality-Adjusted Repeat-Sale House Price Indices," Working Papers 2014.01, School of Economics, La Trobe University.
    7. Liang Peng, 2012. "Repeat Sales Regression on Heterogeneous Properties," The Journal of Real Estate Finance and Economics, Springer, vol. 45(3), pages 804-827, October.
    8. Lucia Mejia-Dorantes & Odile Heddebaut, 2012. "Land value appraisal in an area with a future tramway project in Lille, France," Post-Print hal-00986000, HAL.

    More about this item

    Keywords

    Repeated sales indices; Small sample problems; Temporal aggregation; C15; C20; D40; G20; R21;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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