Smoothing, Nonsynchronous Appraisal and Cross-Sectional Aggregation in Real Estate Price Indices

56 Pages Posted: 10 Jun 2004  

Shaun A. Bond

University of Cincinnati

Soosung Hwang

Sungkyunkwan University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January, 2005

Abstract

In this paper three econometric issues related to private-equity return indices, such as real estate indices, are explored (smoothing, nonsynchronous appraisal, and cross-sectional aggregation). Under certain assumptions, it is found that index returns based on appraisals follow an ARFIMA(0,d,1) process, where the long memory parameter (d) explains the level of smoothing and the MA parameter explains the nonsynchronous appraisal problem. The empirical results show that: 1) the level of smoothing in appraisal based real estate indices is far less than assumed in many academic studies; 2) nonsynchronous appraisal problem exists and becomes a more serious problem for higher frequency returns; and, 3) the level of volatility of real estate securities is higher than that recovered from an appraisal based index by around 50 percent. We interpret this difference as the level of noise in stock markets.

Keywords: Smoothing, Nonsynchronous Appraisal, Long Memory

JEL Classification: C4, G12

Suggested Citation

Bond, Shaun A. and Hwang, Soosung, Smoothing, Nonsynchronous Appraisal and Cross-Sectional Aggregation in Real Estate Price Indices (January, 2005). EFA 2004 Maastricht Meetings Paper No. 4782; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=556095 or http://dx.doi.org/10.2139/ssrn.556095

Shaun Alexander Bond

University of Cincinnati ( email )

College of Business Administration
Cincinnati, OH 45221-0195
United States

Soosung Hwang (Contact Author)

Sungkyunkwan University - Department of Economics ( email )

25-2 Sungkyunkwan-ro
Jongno-Gu
110-745 Seoul
+82 (0)2 760 0489 (Phone)
+82 (0)2 744 5717 (Fax)

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