What is the difference between these 2 indices and what is the meaning of this sentence “Appraisal based indices tend to lag actual transactions because, actual transactions occur before appraisals are performed” Totally confused at the menining of this sentence. Please do help. Thanks in advance.
realize there is an appraisal lag and that transaction based indexes are more current. appraisal lag tends to smooth earnings of indexes and underestimate the correlation other asset classes
Maybe think of it like this:
Transaction based index: a transaction that occurs today, tomorrow is in the index reflecting the transaction price
Appraisal based index: a transaction that occurs today, tomorrow goes to the appraiser, who takes time to perform the valuation. After some time, the appraiser publishes the number and reflects the appraisal price
The time between one and the other would be the appraisal lag.