Bank Lending and Real Estate in Asia: Market Optimism and Asset Bubbles
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 (lend...
Saved in:
| Main Authors: | , , , , , |
|---|---|
| Format: | text |
| Language: | English |
| Published: |
Institutional Knowledge at Singapore Management University
2005
|
| Subjects: | |
| Online Access: | https://ink.library.smu.edu.sg/soe_research/446 https://ink.library.smu.edu.sg/context/soe_research/article/1445/viewcontent/BankLendingRealEstateAsia_2005.pdf |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Institution: | Singapore Management University |
| Language: | English |
| Summary: | 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. |
|---|