Real Estate Price Volatility Research Paper Example | Topics and Well Written Essays - 1000 words

Real Estate Price Volatility - Research Paper modelingIn this context, the present paper attempts to discuss about one of the early developed models that is still public in the present economic scenario. The model was developed by R. Engle in 1982, which came to be known as Autoregressive Conditional Heteroskedasticity ( pixilated). The paper also attempts to through lights on how effective is the model in the present corpo realistic the three estates climate in the United States of America with particular reference to California. The paper takes an analytical feeler wherein the model is suggested with a brief explanation of its application, merits and demerits.The various stakeholders (participants) in the real estate market comprising of real estate investors, banks, non-bank financial institutions, portfolio managers give up ever so been curious to predict the local housing prices. Naturally, they ease up always encouraged the attempts to evolve mathematical models that c an prevent the losses and chaos from the volatility of real estate prices. Parties who atomic number 18 also interested in housing prices estimating models include managers of banks, Real Estate Investment Trusts (REITs), and homebuilding companies. precedent models have tried to incorporate many of the macroeconomic variables including the bubbles and crashes in the stock market. Experts such as Alan stock raiser and Tesar Linda, Lane Philip and Girouard N and Blndal have described the housing price behavior from a dynamic command equilibrium point of view (Stockman and Tesar, 1995, Girouard and Blndal, 2001 and Lane, 2001). Studies undertaken by Driffill John and Sola Martin explored the model in the context of market bubbles (Driffill and Sola 1998). Attempts have also been done to evolve a model that incorporate the interaction of an array of variables such as transactions in the real estate sector, changes in the demography of participants, and macro factors comprising of d iversity in the income statistical distribution and changes in the economic activity as a whole. For example, Francois Ortalo-Magne and Rady Sven have studied these aspects through a operative research (Ortalo-Magne and Rady 1998, 1999, 2003a and 2003b). Economic Analysis The model developed by R. Engle in 1982 is found relevant in the present scenario where traditional models that describe variables such as location factors, structural variables and floor area and income are no longer valid (Engle 1982). This model was coined as Autoregressive Conditional Heteroskedasticity (ARCH). The basic contention of this model is that housing price prediction should take care of time-varying volatility and studied through time series analysis.The sit downThe ARCH model was developed using mathematical and statistical notations and theories. For a better understanding of the model, the ARCH process consisting of conditional mean process and a conditional variance process will have to be know n. The conditional mean process is developed in conformity to the standard Autoregressive Moving add up (ARMA) equation (Engle 1982). Where, Rt is the return on average home prices on a monthly basis, e, and s2 are constants. finished this model, Engle try to analyze and incorporate the pricing behavior with two