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Smoothing, Nonsynchronous Appraisal and Cross‐Sectional Aggregation in Real Estate Price Indices
Author(s) -
Bond Shaun A.,
Hwang Soosung
Publication year - 2007
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/j.1540-6229.2007.00193.x
Subject(s) - autoregressive fractionally integrated moving average , econometrics , real estate , economics , index (typography) , equity (law) , price index , investment (military) , stock (firearms) , smoothing , stock market index , financial economics , actuarial science , statistics , mathematics , volatility (finance) , long memory , finance , computer science , engineering , horse , politics , world wide web , political science , stock market , law , biology , mechanical engineering , paleontology
In this article 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(1, d , 1) (autoregressive fractionally integrated moving average) process, where the long memory parameter ( d ) explains the level of smoothing and the AR and MA parameters represent the level of persistence in marketwide fundamentals and the nonsynchronous appraisal, respectively. 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) there is weak evidence of nonsynchronous appraisal in the UK, IPD (Investment Property Databank) index and (3) marketwide fundamentals are highly persistent for the IPD index returns. On the other hand, there is no evidence of nonsynchronous appraisal or a persistent common factor in the U.S. NCREIF (National Council of Real Estate Investment Fiduciaries) index.