Index Revision, House Price Risk, and the Market for House Price Derivatives

32 Pages Posted: 22 Feb 2008

See all articles by John M. Quigley

John M. Quigley

University of California, Berkeley, College of Letters & Science, Department of Economics (Deceased); University of California, Berkeley, Haas School of Business, Real Estate Group (Deceased)

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

Multiple version iconThere are 2 versions of this paper

Date Written: February 2008

Abstract

It is widely recognized that options and futures markets for housing can reduce and manage the risks inherent in consumers' large investments in housing equity. The integrity of such markets depends, however, upon the use of transparent and replicable benchmarks for house prices and settlement values. In the U.S., a series of state and metropolitan indexes have been produced by a government agency (The U.S. Office of Housing Enterprise Oversight, OFHEO), and they have been widely disseminated for over a decade. By construction, the entire historical path of each of these indexes is, in principle, subject to revision quarterly, that is, every time the index is recalculated and data are published. This paper provides the first analysis of the magnitude and bias of these revisions, and it analyzes their systematic effects on the settlement prices in housing options markets. The paper considers the implications of these magnitudes for the development of risk-reducing futures markets.

Keywords: Repeat sales index, index revision, house price risk, house price derivatives

JEL Classification: G11, R21, G13

Suggested Citation

Quigley, John M. and Deng, Yongheng, Index Revision, House Price Risk, and the Market for House Price Derivatives (February 2008). Available at SSRN: https://ssrn.com/abstract=1095640 or http://dx.doi.org/10.2139/ssrn.1095640

John M. Quigley

University of California, Berkeley, College of Letters & Science, Department of Economics (Deceased) ( email )

Berkeley, CA 94720-3880
United States
510-643-7411 (Phone)
510-643-7357 (Fax)

University of California, Berkeley, Haas School of Business, Real Estate Group (Deceased) ( email )

Berkeley, CA 94720-1900
United States

Yongheng Deng (Contact Author)

Wisconsin School of Business, University of Wisconsin-Madison ( email )

4110 Grainger Hall
975 University Avenue
Madison, WI 53706
United States
+1 (608) 262-4865 (Phone)

HOME PAGE: http://https://bus.wisc.edu/faculty/yongheng-deng

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