Revisions in Repeat Sales Price Indices: Here Today, Gone Tomorrow?

Posted: 14 Feb 1999

See all articles by John M. Clapp

John M. Clapp

University of Connecticut - Department of Finance

Carmelo Giaccotto

University of Connecticut - Department of Finance

Abstract

Price indices based on the repeat sales model are revised all the way to the beginning of the sample every time a new quarter of information becomes available. Revisions can adversely affect practitioners. In this paper we examine this revision process both theoretically and empirically.

The theory behind the repeat sales method says that revisions should lower the standard error of the estimated indices; we prove that, in fact, the revised index is more efficient than the original one. This implies that large samples should make revisions trivial. However, our data, and the Freddie-Fannie data, suggest that revisions are large, insensitive to sample size and systematic; revisions are more likely to be downward than upward.

In Los Angeles and Fairfax, revisions are usually downward and statistically significant. This bias in initial repeat sales estimates is caused by sample selectivity; properties with only one or two years between sales do not appreciate at the same rate as other properties. We hypothesize that these "flips" are improved (possibly cosmetically) between sales. One implication of our analysis is that flips should be removed or downweighted before calculating repeat sales indices. The same model estimated without flips appears free of bias. We find small increases in efficiency from adding up to 4,300 observations to a base of 1,200.

JEL Classification: R19

Suggested Citation

Clapp, John M. and Giaccotto, Carmelo, Revisions in Repeat Sales Price Indices: Here Today, Gone Tomorrow?. Real Estate Economics, Vol. 27, No. 1, 1999. Available at SSRN: https://ssrn.com/abstract=145359

John M. Clapp (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-5057 (Phone)
860-486-0349 (Fax)

Carmelo Giaccotto

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
202-486-4360 (Phone)
202-486-0349 (Fax)

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