Which statement is FALSE regarding an appraisal-based index? An appraisal-based index tends to ______ than a transaction-based index.

A. have less volatility
B. lag the market
C. have a higher correlation with other asset classes

Correct Answer: C

It tends to have a lower correlation with other asset classes.

A real estate index can suffer from two major types of issues - noise and lag. Noise refers to random deviation between the index value level and the actual market price, and lag refers to a systematic tendency of the index to only partially reflect the true current return in any given period.

In these two genres, noise tends to be more of a potential problem in transaction-based indexes, and lag tends to be more of a problem in appraisal-based indexes.