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Revisiting the Past and Settling the Score: Index Revision for House Price Derivatives
(2005)
  • Eric Clapham, Stockholm School of Economics
  • Peter Englund, Stockholm School of Economics
  • John M. Quigley, University of California, Berkeley
  • Christian L. Redfearn, University of Southern California
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
Publication Date
May, 2005
Citation Information
Eric Clapham, Peter Englund, John M. Quigley and Christian L. Redfearn. "Revisiting the Past and Settling the Score: Index Revision for House Price Derivatives" (2005)
Available at: http://works.bepress.com/john_quigley/41/