Commercial Real Estate Returns: An Anatomy of Smoothing in Asset and Index Returns

In this article, we investigate the commonly used autoregressive filter method of adjusting appraisal‐based real estate returns to correct for the perceived biases induced in the appraisal process. Many articles have been written on appraisal smoothing but remarkably few have considered the relation...

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Bibliographic Details
Published in:Real estate economics 2012-12, Vol.40 (4), p.637-661
Main Authors: Bond, Shaun A., Hwang, Soosung, Marcato, Gianluca
Format: Article
Language:English
Subjects:
Assets
Commercial real estate
Indexes
Real estate appraisal
Regression analysis
Studies
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Summary:In this article, we investigate the commonly used autoregressive filter method of adjusting appraisal‐based real estate returns to correct for the perceived biases induced in the appraisal process. Many articles have been written on appraisal smoothing but remarkably few have considered the relationship between smoothing at the individual property level and the amount of persistence in the aggregate appraisal‐based index. To investigate this issue we analyze a large sample of appraisal data at the individual property level from the Investment Property Databank. We find that commonly used unsmoothing estimates at the index level overstate the extent of smoothing that takes place at the individual property level. There is also strong support for an ARFIMA representation of appraisal returns at the index level and an ARMA model at the individual property level.
ISSN:1080-8620
1540-6229
DOI:10.1111/j.1540-6229.2011.00327.x