Unsmoothing Commercial Property Returns: A Revision to Fisher-Geltner-Webb's Unsmoothing Methodology

Fisher, Geltner, and Webb (1993), in a highly influential paper, develop a procedure to recover the underlying market values from a smoothed valuation-based commercial property return index, without assuming that the underlying property market is informationally efficient. Many papers since then have used the Fisher-Geltner-Webb unsmoothing technique to desmooth commercial property returns. We show, however, that there is an inherent bias in Fisher-Geltner-Webb unsmoothing technique and propose a simple extension of their model to correct for this bias. We then compare the performance of our improved specification to that of the Fisher-Geltner-Webb model.