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Smoothing, Nonsynchronous Appraisal and Cross-Sectional Aggregation in Real Estate Price Indices


Shaun A. Bond


University of Cincinnati

Soosung Hwang


Sungkyunkwan University - Department of Economics

January, 2005

EFA 2004 Maastricht Meetings Paper No. 4782
Cass Business School Research Paper

Abstract:     
In this paper three econometric issues related to private-equity return indices, such as real estate indices, are explored (smoothing, nonsynchronous appraisal, and cross-sectional aggregation). Under certain assumptions, it is found that index returns based on appraisals follow an ARFIMA(0,d,1) process, where the long memory parameter (d) explains the level of smoothing and the MA parameter explains the nonsynchronous appraisal problem. The empirical results show that: 1) the level of smoothing in appraisal based real estate indices is far less than assumed in many academic studies; 2) nonsynchronous appraisal problem exists and becomes a more serious problem for higher frequency returns; and, 3) the level of volatility of real estate securities is higher than that recovered from an appraisal based index by around 50 percent. We interpret this difference as the level of noise in stock markets.

Number of Pages in PDF File: 56

Keywords: Smoothing, Nonsynchronous Appraisal, Long Memory

JEL Classification: C4, G12

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Date posted: June 10, 2004  

Suggested Citation

Bond, Shaun A. and Hwang, Soosung, Smoothing, Nonsynchronous Appraisal and Cross-Sectional Aggregation in Real Estate Price Indices (January, 2005). EFA 2004 Maastricht Meetings Paper No. 4782; Cass Business School Research Paper. Available at SSRN: http://ssrn.com/abstract=556095 or http://dx.doi.org/10.2139/ssrn.556095

Contact Information

Shaun Alexander Bond
University of Cincinnati ( email )
College of Business Administration
Cincinnati, OH 45221-0195
United States
Soosung Hwang (Contact Author)
Sungkyunkwan University - Department of Economics ( email )
25-2 Sungkyunkwan-ro
Jongno-Gu
110-745 Seoul
+82 (0)2 760 0489 (Phone)
+82 (0)2 744 5717 (Fax)
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