Comparison of the Accuracy of the Minimum-Variance Grid Method and the Least Squares Method – A Non-Linear Extension

Real Estate Valuation Theory, (Wang, K and Wolverton, M. I. ed.) American Real Estate Society Monograph Series: Resear

11 Pages Posted: 14 May 2012 Last revised: 15 Nov 2012

See all articles by K.W. Chau

K.W. Chau

The University of Hong Kong - Ronald Coase Centre for Property Rights Research - Economics

F. Ng

affiliation not provided to SSRN

W. Huang

affiliation not provided to SSRN

Date Written: August 16, 1999

Abstract

Lai and Wang's (1996) work suggests that under most circumstances, property valuation based on Vandell's (1991) minimum-variance grid method is more accurate than the valuation based on a linear hedonic pricing model with its coefficients estimated using ordinary least squares technique. This study extends the comparison to the non-linear case. We have shown that Lai and Wang's results also hold even when the hedonic price model is non-linear in its coefficients under the same conditions specified in Lai and Wang. Furthermore, we have also derived the necessary and sufficient conditions under which minimum-variance grid method is more accurate than the least squares method.

Keywords: Valuation, hedonic price model, minimum-variance grid method

JEL Classification: C13, L85, M29, M19

Suggested Citation

Chau, Kwong Wing and Ng, Fung and Huang, Wei, Comparison of the Accuracy of the Minimum-Variance Grid Method and the Least Squares Method – A Non-Linear Extension (August 16, 1999). Real Estate Valuation Theory, (Wang, K and Wolverton, M. I. ed.) American Real Estate Society Monograph Series: Resear, Available at SSRN: https://ssrn.com/abstract=2057527

Kwong Wing Chau (Contact Author)

The University of Hong Kong - Ronald Coase Centre for Property Rights Research - Economics ( email )

Ronald Coase Centre for Property Rights Research
Pokfulam Road
Hong Kong
Hong Kong
(852)28592128 (Phone)
(852)25599457 (Fax)

Fung Ng

affiliation not provided to SSRN

Wei Huang

affiliation not provided to SSRN

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