2004
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. We find
that revision is an inherent feature of indexes, but also that the
commonly used 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. We analyze alternative
settlement procedures and contracts to mitigate the impact of
revision associated with repeat sale indexes.
