Analyzing the Temporal Stability of Appraisal Model Coefficients: An Application of Ridge Regression Techniques |
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| Authors: | James S Moore Alan K Reicheri Chien-Ching Cho |
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| Institution: | Department of Business and Economics, Indiana University—Purdue University at Fort Wayne, 2101 Coliseum Boulevard East, Fort Wayne, Indiana 46805.;Customer Services Department, Federal Reserve Bank of Chicago, 220 South Lasalle Street, Chicago, Illinois 60690.;Systems Analysis and Cost Department, The MITRE Corporation, Bedford, Massachusetts 01730. |
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| Abstract: | The use of multiple regression analysis as a tool of real estate valuation has received considerable attention in recent years. The primary objectives of this study are to investigate the multicollinearity among the property characteristics (regressor variables) and examine the stability of the estimated regression coefficients over time. Ridge regression techniques are used to partially adjust for the presence of collinearity. The results indicate that the ridge regression model provides a consistent set of properly signed, statistically significant regression coefficients throughout the sample period. Furthermore, ridge regression techniques are shown to have certain advantages over those of ordinary least squares for establishing logical and consistent values for specific property characteristics. |
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