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Constructing Commercial Indices: A Semiparametric Adaptive Estimator Approach

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Abstract

Constant-quality commercial indices generated by ordinary least squares may suffer an efficiency loss due to leptokurtosis caused by outliers in transactions data. When the subsequent nonnormality occurs, substantial improvement in index precision is obtained by estimating the hedonic model using a semiparametric adaptive estimator technique. When this method was applied to 1,846 office transactions that occurred in the Phoenix metropolitan area from January 1997 through June 2004, a substantial standard error reduction of approximately 9% was realized relative to ordinary least squares estimates. The difference in average returns between the semiparametric method and ordinary least squares was about 0.25% in each period, which represents a substantial increase in commercial property index precision.

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Authors and Affiliations

  1. Department of Economics, University of Quebec at Montreal, P.O. Box 8888, Downtown Station, Montreal, PQ, Canada, H3C 3P8

    Douglas J. Hodgson

  2. Marriott School, Brigham Young University, 692 TNRB, Provo, UT, 84602, USA

    Barrett A. Slade

  3. Marriott School, Brigham Young University, 667 TNRB, Provo, UT, 84602, USA

    Keith P. Vorkink

Authors
  1. Douglas J. Hodgson
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  2. Barrett A. Slade
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  3. Keith P. Vorkink
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Correspondence to Barrett A. Slade.

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C4 R0

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Hodgson, D.J., Slade, B.A. & Vorkink, K.P. Constructing Commercial Indices: A Semiparametric Adaptive Estimator Approach. J Real Estate Finan Econ 32, 151–168 (2006). https://doi.org/10.1007/s11146-006-6012-7

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  • DOI: https://doi.org/10.1007/s11146-006-6012-7

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