The use of combination forecasting approach and its application to regional market analysis
AbstractEconometric modelling of the property market has been exercised for several decades. Despite advancements in the field, there is still an element of uncertainty in property market modelling and forecasting. This uncertainty arises due to prevailing modelling practices. On one hand, researchers select the best performing model and disregard alternatives. On the other hand, researchers face a dilemma in deciding which model to choose when competing specifications produce different results. A possible solution is to use the principle of combination forecasting to reduce uncertainty and improve accuracy. Certainly, combination forecasting has its limitations. One criticism is that combination forecasting has predominantly focused on national property markets analysis. To enhance the application of combination forecasting, it would be useful to use it in research on regional markets analysis.
Adair, A, McGreal, S and Webb, JR (2006) Diversification Effects of Private versus Public Real Estate in the UK. (Paper presented at the PRRES Conference, Pacific Rim Real Estate Society Conference, Auckland, 2006).
Armstrong, JS (1986) Research on Forecasting: A Quarter-Century Review, 1960--1984. Interfaces 16: 89--109.
Armstrong, JS, Ayres, RU, Christ, CF and Ord, JK (1984) Forecasting by Extrapolation: Conclusions from 25 Years of Research [with Comment and Reply]. Interfaces 14: 52--66.
Armstrong, JS, Green, KC and Graefe, A (2013) Golden Rule of Forecasting: Be Conservative. Journal of Business Review (Forthcoming ).
Bailly, AS and Coffey WJ (1994) Regional Science in Crisis: A Plea For a More Open and Relevant Approach. Papers in Regional Science 73: 3--14.
Banternghansa, C. and McCracken, M.W. (2010) Real-Time Forecast Averaging with ALFRED. The Federal Reserve Bank of St. Louis, Working Paper 2010-033A, 49--66.
Barras, R (1994) Property and the Economic Cycle: Building Cycles Revisited. Journal of Property Research 11: 183--197.
Barras, R (2009) Building Cycles: Growth and Instability (Real Estate Issues). Wiley-Blackwell, London, 448.
Bates, JM and Granger, CWJ (1969) The Combination of Forecasts. Operational Research Society 20: 451--468.
Bradley, MG, Gordon, JD and Mcmanus, DA (2003) Method for Combining House Price Forecasts. United States Patent 6609109.
Brooks, C and Tsolacos, S (2000) Forecasting Models of Retail Rents. Environment and Planning A 32: 1825--1839.
Brooks, C and Tsolacos, S (2010) Real Estate Modelling and Forecasting. Cambridge University Press, 474.
Buede, D (2009) Errors Associated With Simple Versus Realistic Models. Computational & Mathematical Organization Theory 15: 11--18.
Cabrera, J, Wang, T and Yang, J (2011) Linear and Nonlinear Predictability of International Securitized Real Estate Returns: A Reality Check. Journal of Real Estate Research 33: 565--594.
Chaplin, R (1999) The Predictability of Real Office Rents. Journal of Property Research 16: 21--49.
Clemen, RT (1989) Combining forecasts: A Review and Annotated Bibliography. International Journal of Forecasting 5: 559--583.
Clements, MP and Hendry, DF (2003) Economic Forecasting: Some Lessons From Recent Research. Economic Modelling 20: 301--329.
Dalio, R. (2014) Economic Principles. Bridgewater Associates, LP, 211.
D'Arcy, E, McGough, T and Tsolacos, S (1999) An Econometric Analysis and Forecasts of the Office Rental Cycle in the Dublin Area. Journal of Property Research 16: 309--321.
Dorn, HF (1950) Pitfalls in Population Forecasts and Projections. Journal of the American Statistical Association 45: 311--334.
Drought, S and McDonald, C (2011) Forecasting House Price Inflation: A Model Combination Approach. Reserve Bank of New Zealand, Discussion Paper Series No.ISSN 1177-7567, 32.
Eichholtz, PMA, Hoesli, M, MacGregor, BD and Nanthakumaran, N (1995) Real Estate Portfolio Diversification by Property Type and Region. Journal of Property Finance 6: 39--59.
Fildes, R (1991) Efficient Use of Information in the Formation of Subjective Industry Forecasts. Journal of Forecasting 10: 597--617.
Fleming, M. and Kuo, C.L. (2007) Method and Apparatus for Predicting and Reporting a Rea Estate Value Based on a Weighted Average of Predicted Values. United States Patent 7305328.
Friedman, HC (1971) Real Estate Investment and Portfolio Theory. The Journal of Financial and Quantitative Analysis 6: 861--874.
Fss, R, Stein, M and Zietz, J (2012) A Regime-Switching Approach to Modelling Rental Prices of U.K. Real Estate Sectors. Real Estate Economics, 40: 317--350.
Gallimore, P and McAllister, P (2004) Expert Judgement in the Processes of Commercial Property Market Forecasting. (Paper presented at the European Real Estate Society Annual Conference, Milan, 2004).
Goodwin, P (2009) New Evidence on the Value of Combining Forecasts. Foresight: The International Journal of Applied Forecasting 12: 33--35.
Granger, CWJ (1969) Investigating Causal Relations by Econometric Models and Cross-Spectral Methods. Econometrica 37: 424--438.
Grubel, HG (1968) Internationally Diversified Portfolios: Welfare Gains and Capital Flows. The American Economic Review 58: 1299--1314.
Gupta, R, Kabundi, A and Miller, SM (2011) Forecasting the US Real House Price Index: Structural and Non-Structural Models With and Without Fundamentals. Economic Modelling 28: 2013--2021.
Hajnal, J (1955) The Prospects for Population Forecasts. Journal of the American Statistical Association 50: 309--322.
Hekman, JS (1985) Rental Price Adjustment and Investment in the Office Market. Real Estate Economics 13: 32--47.
Investment Property Forum (IPF) (2012) Reassessing the Accuracy of UK Commercial Property Forecasts, accessed 12 February, 2013, Available online at: https://www.ipf.org.uk/membersarea/downloads/listings1.asp?pid=36
Isserman, AM (1993) Lost in Space? On the History, Status, and Future of Regional Science. The Review of Regional Studies 23: 1--50.
Jin, C. and Grissom, T.V. (2008) Forecasting Dynamic Investment Timing under the Cyclic Behavior in Real Estate. International Real Estate Review 11: 105--125.
Jones, C. (1995) An Economic Basis for the Analysis and Prediction of Local Office Property Markets. Journal of Property Valuation and Investment 13: 16--30.
Kapetanios, G, Labhard, V, and Price, S (2008) Forecast Combination and the Bank of England's Suite of Statistical Forecasting Models. Economic Modelling 25: 772--792.
Karakozova, O (2004) Modelling and Forecasting Office Returns in the Helsinki Area. Journal of Property Research 21: 51--73.
Kohlert, D. (2010) The Determinants of Regional Real Estate Returns in the United Kingdom: A Vector Error Correction Approach. Journal of Property Research 27: 87--117.
Koschinsky, J, Koster, S, Patuelli, R, Royuela, V and Tselios, V (2014) Editorial: REGION -- the online open-access journal of ERSA. REGION 1: 1--3.
Lee, SL (1998a) Sector and Regional Factors in Real Estate Returns. (Paper presented at the ARES Meeting, Monterey, California, 1998).
Lee, SL (1998b) The Relative Importance of Sectors V's Regions in Determining Property Returns. (Paper presented at the PRRES Conference, Perth, Western Australia, 1998).
Lee, SL and Stevenson, S (2005) Testing the Statistical Significance of Sector and Regional Diversification. Journal of Property Investment & Finance 23: 394--411.
Mahmoud, E (1984) Accuracy in Forecasting: A survey. Journal of Forecasting 3: 139--159.
Makridakis, S (1981) Forecasting Accuracy and the Assumption of Constancy. Omega 9: 307--311.
Makridakis, S (1989) Why Combining Works? International Journal of Forecasting 5: 601--603.
Makridakis, S, Wheelwright, SC, and Hyndman, RJ (1998) Forecasting: Methods and Applications. 3rd.ed., John Wiley & Sons, Inc., 656.
Malizia, EE and Simons, RA (1991) Comparing Regional Classifications for Real Estate Portfolio Diversification. Journal of Real Estate Research 6: 53--78.
McAllister, P and Kennedy, P (2007) Data Uncertainty in Real Estate Forecasting. Working Papers in Real Estate & Planning, No.rep-wp2007-06, University of Reading, 16.
McAllister, P, Newell, G and Matysiak, GA (2005) An Evaluation of the Performance of UK Real Estate Forecasters. Working Papers in Real Estate & Planning, No.rep-wp2005-23, University of Reading, 33.
Newell, G and MacFarlane, J (2006) The Accuracy of Commercial Property Forecasting in Australia. Pacific Rim Property Research Journal 12: 311--325.
Newell, G, Acheampong, P and Karantonis, A (2002) The Accuracy of Property Forecasting. (Paper presented at the PRRES Conference, Christchurch, 2002).
Orrell, D and McSharry, P (2009) System Economics -- Overcoming the Pitfalls of Forecasting Models via a Multidisciplinary Approach. International Journal of Forecasting 25: 734--743.
Pagourtzi, E, Assimakopoulos, V and Litsa, A (2005) Theta Model Forecasts of Quarterly and Monthly Dwelling Prices in the UK. Briefings in Real Estate Finance 5: 75--105.
Pesaran, MH and Pick, A (2011) Forecast Combination Across Estimation Windows. Journal of Business and Economic Statistics 29: 307--318.
Rapach, DE and Strauss, JK (2007) Forecasting Real Housing Price Growth in the Eighth District States. Regional Economic Development 3: 33--42.
Rosen, KT (1984) Toward a Model of the Office Building Sector. Real Estate Economics 12: 261--269.
Smith, KV and Shulman, D (1976) The Performance of Equity Real Estate Investment Trusts. Financial Analysts Journal 32: 61--66.
Stevenson, S and McGarth, O (2003) A Comparison of Alternative Rental Forecasting Models: Empirical Tests on the London Office Market. Journal of Property Research 20: 235--260.
Stock, JH and Watson, MW (2004) Combination Forecasts of Output Growth in a Seven-Country Data Set. Journal of Forecasting 23: 405--430.
Tsolacos, S (1995) An Econometric Model of Retail Rents in the United Kingdom. The Journal of Real Estate Research 10: 519--529.
Wallis, KF (2011) Combining Forecasts -- Forty Years Later. Applied Financial Economics 21: 33--41.
Wheaton, WC (1987) The Cyclical Behaviour of the National Office Market. Journal of American Real Estate and Urban Economics Association 15: 281--299.
Wilson, PJ, Okunev, J, Ellis, C and Higgins, DM (2000) Comparing Univariate Forecasting Techniques in Property Markets. Journal of Real Estate Portfolio Management 6: 283--306.
Wood, S (1976) Combining Forecasts to Predict Property Values for Single-Family Residences. Land Economics 52: 221--229.
Copyright (c) 2014 Arvydas Jadevicius
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
REGION is an open journal, and uses the standard Creative Commons license: Copyright We want authors to retain the maximum control over their work consistent with the first goal. For this reason, authors who publish in REGION will release their articles under the Creative Commons Attribution-NonCommercial license. This license allows anyone to copy and distribute the article for non-commercial purposes provided that appropriate attribution is given to REGION and the authors. For details of the rights authors grant users of their work, see the "human-readable summary" of the license, with a link to the full license. (Note that "you" refers to a user, not an author, in the summary.) Upon submission, the authors agree that the following three items are true: 1) The manuscript named above: a) represents valid work and neither it nor any other that I have written with substantially similar content has been published before in any form except as a preprint, b) is not concurrently submitted to another publication, and c) does not infringe anyone’s copyright. The Author(s) holds ERSA, WU, REGION, and the Editors of REGION harmless against all copyright claims. d) I have, or a coauthor has, had sufficient access to the data to verify the manuscript’s scientific integrity. 2) If asked, I will provide or fully cooperate in providing the data on which the manuscript is based so the editors or their assignees can examine it (where possible) 3) For papers with more than one author, I as the submitter have the permission of the coauthors to submit this work, and all authors agree that the corresponding author will be the main correspondent with the editorial office, and review the edited manuscript and proof. If there is only one author, I will be the corresponding author and agree to handle these responsibilities.