Publication Type
Journal Article
Version
publishedVersion
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
Citation
KOH, Winston T. H.; MARIANO, Roberto S.; PAVLOV, Andrey; PHANG, Sock-Yong; TAN, Augustine H. H.; and WACHTER, Susan M..
Bank Lending and Real Estate in Asia: Market Optimism and Asset Bubbles. (2005). Journal of Asian Economics. 15, (6), 1103-1118.
Available at: https://ink.library.smu.edu.sg/soe_research/446
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.asieco.2004.11.004