Cowles Foundation, Yale University. The author wishes to thank Peter Abken, Steven Bloom, Michael Brennan, John Campbell, P. H. Kevin Chang, Karl Case, Zvi Griliches, Sanford Grossman, Jonathan Ingersoll, Paul Kupiec, Hayne Leland, Charles Longfield, Ben Krause, Nathan Most, Stephen Ross, Jeremy Siegel, Christopher Sims, Steven Sural, and Allan Weiss for helpful discussions. Jose Carvalho, Ivailo Izvorski, and Toshiaki Watanabe provided research assistance. This research was supported by the National Science Foundation under grant No. SES-9122229.
Measuring Asset Values for Cash Settlement in Derivative Markets: Hedonic Repeated Measures Indices and Perpetual Futures
Article first published online: 30 APR 2012
1993 The American Finance Association
The Journal of Finance
Volume 48, Issue 3, pages 911–931, July 1993
How to Cite
SHILLER, R. J. (1993), Measuring Asset Values for Cash Settlement in Derivative Markets: Hedonic Repeated Measures Indices and Perpetual Futures. The Journal of Finance, 48: 911–931. doi: 10.1111/j.1540-6261.1993.tb04024.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
Two proposals are made that may facilitate the creation of derivative market instruments, such as futures contracts, cash settled based on economic indices. The first proposal concerns index number construction: indices based on infrequent measurements of nonstandardized items may control for quality change by using a hedonic repeated measures method, an index number construction method that follows individual assets or subjects through time and also takes account of measured quality variables. The second proposal is to establish markets for perpetual claims on cash flows matching indices of dividends or rents. Such markets may help us to measure the prices of the assets generating these dividends or rents even when the underlying asset prices are difficult or impossible to observe directly. A perpetual futures contract is proposed that would cash settle every day in terms of both the change in the futures price and the dividend or rent index for that day.