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Reliability and Heterogeneity of Real Estate Indexes and their Impact on the Predictability of Returns

Author

Listed:
  • Sampagnaro, Gabriele
  • Battaglia, Francesca

Abstract

This paper addresses the issue of data quality in the real estate market. In many countries, the returns indices for direct markets are provided by several sources differing in terms of the methodology adopted and index weights. These differences produce a lack of informative standardization, which could negatively affect the ability of market participants to make predictions. By focusing on the Italian real estate market, the aim of the paper is therefore twofold: to investigate the reliability of property data sources, and to assess the impact for financial intermediaries involved in real estate investments. Our results show a significant level of divergence between the data, and considerable implications for those financial institutions dealing with them. These findings conflict with the requirements of an efficient (or at least sub-efficient) market.

Suggested Citation

  • Sampagnaro, Gabriele & Battaglia, Francesca, 2010. "Reliability and Heterogeneity of Real Estate Indexes and their Impact on the Predictability of Returns," MPRA Paper 23378, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:23378
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    File URL: https://mpra.ub.uni-muenchen.de/23378/1/MPRA_paper_23378.pdf
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    References listed on IDEAS

    as
    1. S. Michael Giliberto, 1988. "A Note on the use of Appraisal Data in Indexes of Performance Measurement," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(1), pages 77-83.
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    3. Zhenguo Lin & Kerry D. Vandell, 2007. "Illiquidity and Pricing Biases in the Real Estate Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(3), pages 291-330, September.
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    6. Qi, Min & Yang, Xiaolong, 2009. "Loss given default of high loan-to-value residential mortgages," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 788-799, May.
    7. Bank for International Settlements, 2005. "Real estate indicators and financial stability," BIS Papers, Bank for International Settlements, number 21, April.
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    10. David Geltner & Peiling Wei & David C. Ling, 2007. "Indices for Investment Benchmarking and Return Performance Analysis in Private Real Estate," International Real Estate Review, Asian Real Estate Society, vol. 10(1), pages 93-118.
    11. Koetter, Michael & Poghosyan, Tigran, 2008. "Real estate markets and bank distress," Discussion Paper Series 2: Banking and Financial Studies 2008,18, Deutsche Bundesbank.
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    13. David Geltner, 1989. "Bias in Appraisal-Based Returns," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(3), pages 338-352.
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    18. Tsong-Yue Lai & Ko Wang, 1998. "Appraisal Smoothing: The Other Side of the Story," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 26(3), pages 511-535.
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    Cited by:

    1. Krzysztof Olszewski, 2012. "The impact of commercial real estate on the financial sector, its tracking by central banks and some recommendations for the macro-financial stability policy of central banks," NBP Working Papers 132, Narodowy Bank Polski, Economic Research Department.
    2. Krzysztof Olszewski, 2013. "The Commercial Real Estate Market, Central Bank Monitoring and Macroprudential Policy," Review of Economic Analysis, Rimini Centre for Economic Analysis, vol. 5(2), pages 213-250, December.

    More about this item

    Keywords

    real estate; data divergence; IRR; efficient frontier;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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