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

Posted: 30 Sep 2008

See all articles by Yongheng Deng

Yongheng Deng

Wisconsin School of Business, University of Wisconsin-Madison

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)

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Date Written: September, 29 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 derivative

JEL Classification: G11, R21, G13

Suggested Citation

Deng, Yongheng and Quigley, John M., Index Revision, House Price Risk, and the Market for House Price Derivatives (September, 29 2008). Journal of Real Estate Finance and Economics, Vol. 37, No. 3, 2008. Available at SSRN: https://ssrn.com/abstract=1275412

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

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

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