Spatial Dependence, Idiosyncratic Risk, and the Valuation of Disaggregated Housing Data
Prodosh Simlai ()
Additional contact information
Prodosh Simlai: University of North Dakota
The Journal of Real Estate Finance and Economics, 2018, vol. 57, issue 2, 192-230
Abstract We investigate whether spatial idiosyncratic risk plays an important role in explaining average housing prices in a representative U.S. market. We discuss a parsimonious hedonic model of demand for differentiated products and derive an equilibrium price function that depends on idiosyncratic risk, among other factors. Empirically, we use a nonlinear spatial regression model and identify a potential measure of idiosyncratic risk from sales data of individual residential properties in Ames, Iowa. The results show that, for our disaggregated housing data, there is a significant volatility interdependence among cross-sectional units because of geographical proximity. In our sample, a 1% increase in idiosyncratic risk, ceteris paribus, is associated with a 0.80% increase in average price of residential properties. We find that accounting for spatial autocorrelation and heteroskedasticity increases the evidence that idiosyncratic risk, which is captured by space-varying volatility, reveals important information about average housing prices. We conclude that using a spatial regression model that allows interaction between property prices and volatility yields strong predictive power.
Keywords: Housing price model; Spatial regression; Idiosyncratic risk; SARCH-M model; Prediction; C13; C21; C53 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s11146-017-9610-7 Abstract (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:jrefec:v:57:y:2018:i:2:d:10.1007_s11146-017-9610-7
Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11146/PS2
Access Statistics for this article
The Journal of Real Estate Finance and Economics is currently edited by Steven R. Grenadier, James B. Kau and C.F. Sirmans
More articles in The Journal of Real Estate Finance and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla ().