- is incorrect. Smoothed Relative TO RE understas vol and correlation ‘Unsmoothing’ should fix asynchronous bias
sorry, last clarification: NACREIF index, to begin with is Smoothed… and that means infrequent/stale pricing? everything else I understand…
So your basically telling me…Unsmoothed is perfect…no problems, no issues.
cfacfacfa Wrote: ------------------------------------------------------- > So your basically telling me…Unsmoothed is > perfect…no problems, no issues. plenty of problems. Unsmoothed is just ‘statistically’ better then smoothed given the infrequency of data pricing, that is it.
3rd & Long Wrote: ------------------------------------------------------- > sorry, last clarification: > > > NACREIF index, to begin with is Smoothed… and > that means infrequent/stale pricing? > > everything else I understand… NCREIF itself is infrequent - - tracks property sales specifically - - values are obtained periodically - - that is in contrast to NAREIT which is a reit index and reits trade every day so NCREIF (whether smoothed or unsmoothed) is based on infrequent data - - and therefore the volatility is downward biased (would agree with CSK and BW that smoothed statistically should be even less vol but i don’t think the material actually gets into that) maybe that’s where i’m hung up - - maybe the question wasn’t referring to unsmoothed vs smoothed - - just NCREIF in general (and the question referred to it as unsmoothed - so i was thinking - okay, vs unsmoothed) still can’t say that i fully understand why NCREIF vol is downward biased due to infrequent measurements - - would think less data points = higher vol but maybe point is that you miss a lot of the peaks and valleys that you might see with reits based on daily trading
3rd & Long Wrote: ------------------------------------------------------- > sorry, last clarification: > > > NACREIF index, to begin with is Smoothed… and > that means infrequent/stale pricing? > > everything else I understand… Think of it as NACREIF and de-smoothed NACREIF. The NACREIF index as reported is inherently smooth because it relies on appraisals instead of actual transaction prices. Appraisers tend to lag the price a property would trade at in the market because they use comparables that may not reflect current market conditions. Also NACREIF is only reported on a quarterly basis so it doesn’t pick up “intra-quarter” volatility in prices. De-smoothing the NACREIF index entails some sort of econometric model that injects volatility into the reported index, but it’s just a modeled construct. I think the main point is that using NACREIF as reported to analyse diversification benefit in a portfolio likely overestimates this benefit because the index itself doesn’t fully capture volatility and correlation between asset classes for the reasons described above.
good post jbaldyga - - that makes sense