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AVM and high dimensional data: Do ridge, the lasso or the elastic net provide an "automated" solution?

Author

Listed:
  • Hinrichs, Nils
  • Kolbe, Jens
  • Werwatz, Axel

Abstract

In this paper, we apply Ridge Regression, the Lasso and the Elastic Net to a rich and reliable data set of condominiums sold in Berlin, Germany, between 1996 and 2013. We their predictive performance in a rolling window design to a simple linear OLS procedure. Our results suggest that Ridge Regression, the Lasso and the Elastic Net show potential as AVM procedures but need to be handled with care because of their uneven prediction performance. At least in our application, these procedures are not the "automated" solution to Automated Valuation Modeling that they may seem to be.

Suggested Citation

  • Hinrichs, Nils & Kolbe, Jens & Werwatz, Axel, 2020. "AVM and high dimensional data: Do ridge, the lasso or the elastic net provide an "automated" solution?," FORLand Working Papers 22 (2020), Humboldt University Berlin, DFG Research Unit 2569 FORLand "Agricultural Land Markets – Efficiency and Regulation".
    • Handle: RePEc:zbw:forlwp:222020
    DOI: 10.18452/21263
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    References listed on IDEAS

    as
    1. Jens Kolbe & Rainer Schulz & Martin Wersing & Axel Werwatz, 2012. "Location, Location, Location: Extracting Location Value from House Prices," Discussion Papers of DIW Berlin 1216, DIW Berlin, German Institute for Economic Research.
    2. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
    3. Hui Zou & Trevor Hastie, 2005. "Addendum: Regularization and variable selection via the elastic net," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(5), pages 768-768, November.
    4. Hui Zou & Trevor Hastie, 2005. "Regularization and variable selection via the elastic net," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(2), pages 301-320, April.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Automated valuation; Machine learning; Elastic Net; Forecastperformance;
    All these keywords.

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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