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

34 Pages Posted: 24 Aug 2007

See all articles by Shaun A. Bond

Shaun A. Bond

UQ Business School

Soosung Hwang

Sungkyunkwan University - Department of Economics

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Abstract

In this article 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(1, d, 1) (autoregressive fractionally integrated moving average) process, where the long memory parameter (d) explains the level of smoothing and the AR and MA parameters represent the level of persistence in marketwide fundamentals and the nonsynchronous appraisal, respectively. 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) there is weak evidence of nonsynchronous appraisal in the UK, IPD (Investment Property Databank) index and (3) marketwide fundamentals are highly persistent for the IPD index returns. On the other hand, there is no evidence of nonsynchronous appraisal or a persistent common factor in the U.S. NCREIF (National Council of Real Estate Investment Fiduciaries) index.

Suggested Citation

Bond, Shaun Alexander and Hwang, Soosung, Smoothing, Nonsynchronous Appraisal and Cross-Sectional Aggregation in Real Estate Price Indices. Real Estate Economics, Vol. 35, No. 3, pp. 349-382, Fall 2007, Available at SSRN: https://ssrn.com/abstract=1007865 or http://dx.doi.org/10.1111/j.1540-6229.2007.00193.x

Shaun Alexander Bond (Contact Author)

UQ Business School ( email )

The University of Queensland
Brisbane, QLD 4072
Australia

Soosung Hwang

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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