medium · FRM Part 2 Risk & Investment Management
A risk manager is concerned about 'selection bias' in a database used to benchmark real estate returns. This bias most likely occurs because:
- Assets are more likely to be sold and prices observed when valuations have increased.
- Only the largest and most liquid real estate assets are included in the indices.
- The database only includes properties that have defaulted in the last ten years.
- Appraisal values are systematically updated every 30 days regardless of transaction activity.
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