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Is there room for another hedonic model? The advantages of the GAMLSS approach in real estate research

Marcelo Cajias (Research, PATRIZIA Immobilien AG, Augsburg, Germany)

Journal of European Real Estate Research

ISSN: 1753-9269

Article publication date: 24 July 2018

Issue publication date: 17 August 2018

263

Abstract

Purpose

This paper aims to explore the in-sample explanatory and out-of-sample forecasting accuracy of the generalized additive model for location, scale and shape (GAMLSS) model in contrast to the GAM method in Munich’s residential market.

Design/methodology/approach

The paper explores the in-sample explanatory results via comparison of coefficients and a graphical analysis of non-linear effects. The out-of-sample forecasting accuracy focusses on 50 loops of three models excluding 10 per cent of the observations randomly. Afterwards, it obtains the predicted functional forms and predicts the remaining 10 per cent. The forecasting performance is measured via error variance, root mean squared error, mean absolute error and the mean percentage error.

Findings

The results show that the complexity of asking rents in Munich is more accurately captured by the GAMLSS approach than the GAM as shown by an outperformance in the in-sample explanatory accuracy. The results further show that the theoretical and empirical complexities do pay off in view of the increased out-of-sample forecasting power of the GAMLSS approach.

Research limitations/implications

The computational requirements necessary to estimate GAMLSS models in terms of number of cores and RAM are high and might constitute one of the limiting factors for (institutional) researchers. Moreover, large and detailed knowledge on statistical inference and programming is necessary.

Practical implications

The usage of the GAMLSS approach would lead policymakers to better understand the local factors affecting rents. Institutional researchers, instead, would clearly aim at calibrating the forecasting accuracy of the model to better forecast rents in investment strategies. Finally, future researchers are encouraged to exploit the large potential of the GAMLSS framework and its modelling flexibility.

Originality/value

The GAMLSS approach is widely recognised and used by international institutions such as the World Health Organisation, the International Monetary Fund and the European Commission. This is the first study to the best of the author’s knowledge to assess the properties of the GAMLSS approach in applied real estate research from a statistical asymptotic perspective by using a unique data basis with more than 38,000 observations.

Keywords

Acknowledgements

The author would like to express his appreciation to PATRIZIA Immobilien AG (www.patrizia.ag/en) for providing with the essential data and especially with the large computational requirements needed for the estimation of the large models. All statements of opinion reflect the current estimations of the author and do not necessarily reflect the opinion of PATRIZIA Immobilien AG or its associated companies. PATRIZIA Immobilien AG | Fuggerstraße 26 | 86150 Augsburg | GERMANY.

Citation

Cajias, M. (2018), "Is there room for another hedonic model? The advantages of the GAMLSS approach in real estate research", Journal of European Real Estate Research, Vol. 11 No. 2, pp. 204-245. https://doi.org/10.1108/JERER-07-2017-0025

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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