Repeat‐Sales Indexes: Estimation Without Assuming that Errors in Asset Returns are Independently Distributed

Posted: 21 Feb 2012

See all articles by Kathryn Graddy

Kathryn Graddy

Brandeis University - Department of Economics

Jonathan H. Hamilton

University of Florida - Warrington College of Business Administration - Department of Economics

Rachel A.J. Pownall

Tilburg University - Department of Finance; Maastricht University - Department of Finance

Date Written: Spring 2012

Abstract

This article proposes an alternative specification for the second stage of the Case‐Shiller repeat‐sales method. This specification is based on serial correlation in the deviations from the mean one‐period returns on the underlying individual assets, whereas the original Case‐Shiller method assumes that the deviations from mean returns by the underlying individual assets are i.i.d. The methodology proposed in this article is easy to implement and provides more accurate estimates of the standard errors of returns under serial correlation. The repeat‐sales methodology is generally used to construct an index of prices or returns for unique, infrequently traded assets such as houses, art and musical instruments, which are likely to be prone to exhibit serial correlation in returns. We demonstrate our methodology on a data set of art prices and on a data set of real estate prices from the city of Amsterdam.

Suggested Citation

Graddy, Kathryn and Hamilton, Jonathan H. and Pownall, Rachel Ann Jane, Repeat‐Sales Indexes: Estimation Without Assuming that Errors in Asset Returns are Independently Distributed (Spring 2012). Real Estate Economics, Vol. 40, Issue 1, pp. 131-166, 2012. Available at SSRN: https://ssrn.com/abstract=2008598 or http://dx.doi.org/10.1111/j.1540-6229.2011.00307.x

Kathryn Graddy (Contact Author)

Brandeis University - Department of Economics ( email )

415 South Street MS 021
Waltham, MA 02453-2728
United States
781-736-8616 (Phone)
781-736-2269 (Fax)

HOME PAGE: http://people.brandeis.edu/~kgraddy/

Jonathan H. Hamilton

University of Florida - Warrington College of Business Administration - Department of Economics ( email )

Gainesville, FL 32611-7140
United States
352-392-5017 (Phone)
352-392-7860 (Fax)

HOME PAGE: http://people.clas.ufl.edu/hamilton/

Rachel Ann Jane Pownall

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

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