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Liquidity in private asset markets is notoriously variable over time. Therefore, indices of changes in market value that are based on asset transaction prices will systematically reflect intertemporal differences in the ease of selling a property. We define and develop a concept of "constant-liquidity value" in the context of a model that is characterized by pro-cyclical volume of trading. We then present an econometric model that allows for estimation of both a standard transaction-based price index and a constant-liquidity index. Our application to the NCREIF database reveals that, in the case of institutional commercial real estate investment, constant-liquidity values tend to lead transaction-based and appraisal-based indices in time, and also to display greater volatility and cycle amplitude. The differences can be significant for strategic investment policy viewed from a mean-variance portfolio optimization perspective. Copyright 2003 by the American Real Estate and Urban Economics Association

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