Heterogeneous Information and Appraisal Smoothing

Ping Cheng, Zhenguo Lin and Yingchun Liu

Journal of Real Estate Research, 2011, vol. 33, issue 4, 443-470

Abstract: This study examines the heterogeneous appraiser behavior and its implication on traditional appraisal smoothing theory. The findings demonstrate that the partial adjustment model is consistent with the traditional appraisal smoothing argument only when all appraisers choose the same smoothing technique. However, if appraiser behavior is heterogeneous and exhibits cross-sectional variation due to the difference in their access to, and interpretation of information, the model actually leads to a mixed outcome: The variance of the transaction-based returns can be higher or lower than the variance of comparable-based return depending on the degree of such heterogeneity. Contrary to what the traditional appraisal smoothing theory would predict, appraisal-based indices may not suffer any "smoothing" bias. These findings suggest that the traditional appraisal smoothing theory, which fails to consider the heterogeneity of appraiser behaviors, exaggerates the effect of appraisal smoothing.

Date: 2011
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DOI: 10.1080/10835547.2011.12091314

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