The Bias of the RSR Estimator and the Accuracy of Some Alternatives

William Goetzmann and Liang Peng

No 270, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper analyzes the implications of cross-sectional heteroskedasticity in repeat sales regression (RSR). RSR estimators are essentially geometric averages of individual asset returns because of the logarithmic transformation of price relatives. We show that the cross sectional variance of asset returns affects the magnitude of bias in the average return estimate for that period, while reducing the bias for the surrounding periods. It is not easy to use an approximation method to correct the bias problem. We suggest a maximum-likelihood alternative to the RSR that directly estimates index returns that are analogous to the RSR estimators but are arithmetic averages of individual returns. Simulations show that these estimators are robust to time-varying cross-sectional variance and may be more accurate than RSR and some alternative methods of RSR.

JEL-codes: R2 (search for similar items in EconPapers)
Date: 2001-04
Note: TWP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Goetzmann, W. N. and L. Peng. "The Bias Of The RSR Estimator And The Accuracy Of Some Alternatives," Real Estate Economics, 2002, v30(1,Spring), 13-39.

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