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The Effect of Seller Reserves on Market Index Estimation

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  • William Goetzmann

Abstract

This paper examines the effect of seller reserves on market index construction. It reports the results of simulations in which transactions are conditioned upon various reservation strategies. Indices constructed by averaging across observed conditional prices each period differ dramatically from unconditional indices. Not only are conditional price levels higher, but the dynamics of the price path are changed. Time-series' of conditional mean returns are not highly correlated to the time-series' of unconditional mean returns, and average return estimates are biased upwards. Alternate estimation procedures provide clear improvements to the conditional mean estimate. Volume of sales is a significant predictor of returns in the presences of certain types of reservation behavior. Hedonic control via the repeat-sales regression provides significant improvements, generating an index that is well correlated to the unconditional mean est

Suggested Citation

  • William Goetzmann, 1998. "The Effect of Seller Reserves on Market Index Estimation," Yale School of Management Working Papers ysm61, Yale School of Management, revised 01 Aug 2000.
    • Handle: RePEc:ysm:somwrk:ysm61
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    File URL: http://icfpub.som.yale.edu/publications/2364
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    3. Taylor, William M., 1992. "The Estimation of Quality-Adjusted Auction Returns with Varying Transaction Intervals," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(1), pages 131-142, March.
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