The Predictive Power of Anisotropic Spatial Correlation Modeling in Housing Prices

Posted: 9 Feb 2011

See all articles by Bing Zhu

Bing Zhu

University of Reading - Henley Business School

Roland Füss

University of St. Gallen - School of Finance

Nico B. Rottke

European Business School (EBS) Wiesbaden - Department Finance, Accounting & Real Estate

Date Written: February 8, 2011

Abstract

This paper develops a method to capture anisotropic spatial autocorrelation in the context of the simultaneous autoregressive model. Standard isotropic models assume that spatial correlation is a homogeneous function of distance. This assumption, however, is oversimplified if spatial dependence changes with direction. We thus propose a local anisotropic approach based on non-linear scale-space image processing. We illustrate the methodology by using data on single-family house transactions in Lucas County, Ohio. The empirical results suggest that the anisotropic modeling technique can reduce both in-sample and out-of-sample forecast errors. Moreover, it can easily be applied to other spatial econometric functional and kernel forms.

Keywords: Spatial regression, Hedonic price model, Anisotropic spatial correlation, Simultaneous autoregressive model, Housing market

Suggested Citation

Zhu, Bing and Füss, Roland and Rottke, Nico B., The Predictive Power of Anisotropic Spatial Correlation Modeling in Housing Prices (February 8, 2011). Journal of Real Estate Finance and Economics, Vol. 42, No. 4, 2011, Available at SSRN: https://ssrn.com/abstract=1758005

Bing Zhu

University of Reading - Henley Business School ( email )

Greenlands
Henley, RG9 3AU
United Kingdom

Roland Füss (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

Nico B. Rottke

European Business School (EBS) Wiesbaden - Department Finance, Accounting & Real Estate ( email )

Gustav-Stresemann-Ring 3
Wiesbaden, Hessen 65189
Germany
0611-36 018 931 (Phone)
0611-36 018 902 (Fax)

HOME PAGE: http://www.rem-institute.org

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