Revisiting the Past and Settling the Score: Index Revision for House Price Derivatives

Eric Clapham, Peter Englund, John M. Quigley () and Christian Redfearn
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Eric Clapham: Stockholm School of Economics
Peter Englund: Stockholm School of Economics
Christian Redfearn: University of Southern California

No 1059, Berkeley Program on Housing and Urban Policy, Working Paper Series from Berkeley Program on Housing and Urban Policy

Abstract: This paper examines index revision in measuring the prices for owner-occupied housing. We consider the context of equity insurance and the settlement of futures contracts. In addition to other desirable characteristics for aggregate price indexes, their usefulness in these contexts requires stability as they are revised. Methods that are subject to substantial or complex revision raise questions about the viability of derivatives markets. Of course, all indexes are subject to revision as the result of new information. Nevertheless, we find that the most-widely used house price indexes are not equally exposed to volatility in revision. Hedonic indexes appear to be substantially more stable than repeat-sales indexes and are less prone to substantial revision in the light of new information. Moreover, we find that the repeat-sales indexes are subject to systematic downward revision. We analyze alternative settlement procedures and contracts to mitigate the impact of revision associated with repeat sale indexes.

Keywords: Hedonic; House price index; Owner occupied housing (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2006-06-27
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Journal Article: Revisiting the Past and Settling the Score: Index Revision for House Price Derivatives (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:cdl:bphupl:1059

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