Publication Type

Journal Article

Publication Date

1-2005

Abstract

This paper investigates the Asian real estate price run-up and collapse in the 1990s. We identify financial intermediaries’ underpricing of the put option imbedded in non-recourse mortgage loans as a potential cause for the observed price behavior. This underpricing is due to behavioral causes (lender optimism and disaster myopia) and/or rational response of lenders to market incentives (agency conflicts, deposit insurance, or limited liability of bank shareholders). The empirical evidence suggests that underpricing occurred in Thailand, Malaysia, and Indonesia. Consequently, these countries experienced a more severe market crash than Hong Kong and Singapore, where underpricing was kept under control by strong government intervention and/or more appropriate incentive mechanisms.

Keywords

Real estate bubble, Lender optimism, Disaster myopia, Asian financial crisis

Discipline

Asian Studies | Finance | Real Estate

Research Areas

Applied Microeconomics

Publication

Journal of Asian Economics

Volume

15

Issue

6

First Page

1103

Last Page

1118

ISSN

1049-0078

Identifier

10.1016/j.asieco.2004.11.004

Publisher

Elsevier

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://doi.org/10.1016/j.asieco.2004.11.004

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