The Efficiency of the Market for Single-Family Homes: A Critique on Case and Shiller (1989)

23 Pages Posted: 21 Oct 2009

See all articles by Ping Cheng

Ping Cheng

Florida Atlantic University - Finance

Zhenguo (Len) Lin

Florida International University (FIU) - Hollo School of Real Estate

Yingchun Liu

Dept. of Finance, Insurance, Real Estate and Law, University of North Texas

Date Written: March 1, 2009

Abstract

This paper comments on the Weighted Repeated Sales (WRS) method in Case and Shiller (1989). We find that Case-Shiller’s model for step-two of WRS is conceptually mis-specified and empirically inaccurate, which are likely to cause the S&P/Case-Shiller Home Price Indices to be biased for the most critical housing markets (i.e. nine of the ten cities with housing related derivatives based on the indices). Based on our examination of real estate market risks, we propose a quadratic model for the second step of WRS and show that our specification is actually more consistent with the findings by Case and Shiller (1989).

Suggested Citation

Cheng, Ping and Lin, Zhenguo and Liu, Yingchun, The Efficiency of the Market for Single-Family Homes: A Critique on Case and Shiller (1989) (March 1, 2009). Available at SSRN: https://ssrn.com/abstract=1491725 or http://dx.doi.org/10.2139/ssrn.1491725

Ping Cheng

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States
561-297-3456 (Phone)
561-297-3686 (Fax)

Zhenguo Lin (Contact Author)

Florida International University (FIU) - Hollo School of Real Estate ( email )

Miami, FL 33199
United States
3057799248 (Phone)

Yingchun Liu

Dept. of Finance, Insurance, Real Estate and Law, University of North Texas ( email )

1155 Union Circle #305340
Denton, TX 76203
United States

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