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A repeat sales index robust to small datasets

  • Baroni Michel
  • Barthélémy Fabrice
  • Mokrane Madhi

    ()

    (ESSEC Business School
    THEMA, Universite de Cergy-Pontoise
    AEW Europe)

As suggested by D. Geltner, commercial properties indices have to be built using repeat sales instead of hedonic indices. The repeat sales method is a means of constructing real estate price indices based on a repeated observation of property transactions. These indices may be used as benchmarks for real estate portfolio managers. But the investors in general are also interested in introducing real estate performance in their portfolio to enhance the efficient frontier. Thus, expected return and volatility are the two key parameters. To create and to improve contracts on real estate indices, trend and volatility of these indices must be robust regarding to the periodicity of the index and the volume of transactions. This paper aims to test the robustness of the trend and volatility estimations for two indices: the classical Weighted Repeat Sales (Case & Shiller 1987) and a PCA factorial index (Baroni, Barthélémy and Mokrane 2007). The estimations are computed from a dataset of Paris commercial properties. The main findings are the trend and volatility estimates are biased for the WRS index and not for the PCA factorial index when the periodicity increases. Consequently, the level of the index at the end of the computing period is significantly different for various periodicities in the case of the WRS index. Globally, the PCA factorial seems to be more robust to the number of transactions. Firstly, we present the two methodologies and then the dataset. Finally we test the impact of the number of transactions per period on the trend and volatility estimates for each index and we give an interpretation of the results.

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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 2009-16.

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Date of creation: 2009
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Handle: RePEc:ema:worpap:2009-16
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  1. Bernard Thion & Philippe Favarger & Martin Hoesli, 2001. "Indices des ventes répétées et modification de l'environnement immobilier," Revue d'économie régionale et urbaine, Armand Colin, vol. 0(5), pages 809-830.
  2. 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, vol. 14(1-2), pages 51-73, Jan.-Marc.
  3. Baroni, Michel & Barthélémy, Fabrice & Mokrane, Mahdi, 2007. "Is it possible to construct derivatives for the Paris residential market?," ESSEC Working Papers DR 07026, ESSEC Research Center, ESSEC Business School.
  4. 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.
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  6. Goetzmann, William N & Spiegel, Matthew, 1995. "Non-temporal Components of Residential Real Estate Appreciation," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 199-206, February.
  7. Min Hwang & John M. Quigley, 2004. "Selectivity, Quality Adjustment and Mean Reversion in the Measurement of House Values," The Journal of Real Estate Finance and Economics, Springer, vol. 28(2_3), pages 161-178, 03.
  8. Eric Clapham & Peter Englund & John M. Quigley & Christian L. Redfearn, 2006. "Revisiting the Past and Settling the Score: Index Revision for House Price Derivatives," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 34(2), pages 275-302, 06.
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  10. Michel Baroni & Fabrice Barthe´le´my & Mahdi Mokrane, 2007. "APCA Factor Repeat Sales Index for Apartment Prices in Paris," Journal of Real Estate Research, American Real Estate Society, vol. 29(2), pages 137-158.
  11. Karl E. Case & Robert J. Shiller, 1987. "Prices of Single Family Homes Since 1970: New Indexes for Four Cities," Cowles Foundation Discussion Papers 851, Cowles Foundation for Research in Economics, Yale University.
  12. Gatzlaff, Dean H & Haurin, Donald R, 1997. "Sample Selection Bias and Repeat-Sales Index Estimates," The Journal of Real Estate Finance and Economics, Springer, vol. 14(1-2), pages 33-50, Jan.-Marc.
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  14. John M. Clapp & Carmelo Giaccotto, 1999. "Revisions in Repeat-Sales Price Indexes: Here Today, Gone Tomorrow?," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(1), pages 79-104.
  15. repec:cup:cbooks:9780521424080 is not listed on IDEAS
  16. Daniel P. McMillen & Jonathan Dombrow, 2001. "A Flexible Fourier Approach to Repeat Sales Price Indexes," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(2), pages 207-225.
  17. 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.
  18. Maurer, Raimond & Pitzer, Martin & Sebastian, Steffen, 2001. "Construction of a Transaction Based Real Estate Index for the Paris Housing Market," Sonderforschungsbereich 504 Publications 01-17, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  19. Mokrane, Mahdi & Baroni, Michel, 2001. "Physical Real Estate : Risk Factors and Investor Behaviour," ERES eres2001_236, European Real Estate Society (ERES).
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