Estimating house price indexes in the presence of seller reservation prices

William Goetzmann, Liang Peng

Research output: Contribution to journalArticlepeer-review

45 Scopus citations

Abstract

We analyze a bias in transaction-based price indexes due to the presence of seller reservation prices. We develop a model in which the ratio of sellers' reservation prices to the market value affects trading volume and biases of observed transaction prices: when trading volume decreases (increases), index returns are estimated with an upward (downward) bias. We propose a new econometric procedure to mitigate the bias, and use simulations to demonstrate the effectiveness of the procedure. We construct a reserve-conditional unbiased index for the Los Angeles housing market, which substantially differs from a traditional repeat sale index.

Original languageEnglish (US)
Pages (from-to)100-112
Number of pages13
JournalReview of Economics and Statistics
Volume88
Issue number1
DOIs
StatePublished - Feb 1 2006

All Science Journal Classification (ASJC) codes

  • Social Sciences (miscellaneous)
  • Economics and Econometrics

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