37 Pages Posted: 8 Feb 2001
Date Written: January 2001
This paper analyzes the implications of cross-sectional hetero- skedasticity in repeat sales regression (RSR). RSR estimators are essentially geometric averages of individual asset returns because of the logarithmic transformation of price relatives. We show that the cross sectional variance of asset returns affects the magnitude of bias in the average return estimate for that period, while reducing the bias for the surrounding periods. It is not easy to use an approximation method to correct the bias problem. We suggest a maximum-likelihood alternative to the RSR that directly estimates index returns that are analogous to the RSR estimators but are arithmetic averages of individual returns. Simulations show that these estimators are robust to time-varying cross-sectional variance and may be more accurate than RSR and some alternative methods of RSR.
Keywords: Repeat sales estimators, Real estate index, Simulation
JEL Classification: C43, R31, R10
Suggested Citation: Suggested Citation
Peng , Liang and Goetzmann, William N., The Bias of the RSR Estimator and the Accuracy of Some Alternatives (January 2001). Yale SOM Working Paper No. ICF - 00-27. Available at SSRN: https://ssrn.com/abstract=258588 or http://dx.doi.org/10.2139/ssrn.258588