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Local Polynomial Regressions versus OLS for Generating Location Value Estimates: Which is More Efficient in Out-of-Sample Forecasts?

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Abstract

As an alternative to ordinary least squares (OLS), we estimate location values for single family houses using a standard housing price and characteristics dataset by local polynomial regressions (LPR), a semi-parametric procedure. We also compare the LPR and OLS models in the Denver metropolitan area in the years 2003, 2006 and 2010 with out-of-sample forecasting. We determine that the LPR model is more efficient than OLS at predicting location values in counties with greater densities of sales. Also, LPR outperforms OLS in 2010 for all 5 counties in our dataset. Our findings suggest that LPR is a preferable approach in areas with greater concentrations of sales and in periods of recovery following a financial crisis.

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  • John M. Clapp & Jeffrey P. Cohen & Cletus C. Coughlin, 2015. "Local Polynomial Regressions versus OLS for Generating Location Value Estimates: Which is More Efficient in Out-of-Sample Forecasts?," Working Papers 2015-14, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2015-014
    DOI: 10.20955/wp.2015.014
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    Cited by:

    1. Lerbs, Oliver & Teske, Markus, 2016. "The house price-vacancy curve," ZEW Discussion Papers 16-082, ZEW - Leibniz Centre for European Economic Research.
    2. Marcelo Cajias, 2017. "Is there room for another hedonic model? –The advantages of the GAMLSS approach in real estate research," ERES eres2017_226, European Real Estate Society (ERES).

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    More about this item

    Keywords

    Land Values; Location Values; Semi-Parametric Estimation; Local Polynomial Regressions;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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