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Bank Lending and Real Estate in Asia: Market Optimism and Asset Bubbles

Winston T.H. Koh, Roberto S. Mariano, Andrey D. Pavlov, Sock Yong Phang, Augustine H.H. Tan, Susan M. Wachter
2004 Social Science Research Network  

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This paper investigates the Asian real estate price run-up and collapse in the 1990s. We identify two sets of potential causes for the observed price behavior: fundamental shifts in demand and underpricing of the put option imbedded in nonrecourse mortgage loans. This underpricing is due to behavioral causes (herding or disaster myopia) and/or rational response of lenders to market incentives (agency conflicts, deposit insurance, or limited liability of bank shareholders). The empirical
more » ... strongly suggests that underpricing was widespread in Thailand, Malaysia, and Indonesia. Consequently, these countries experienced a far more severe market crash then Hong Kong and Singapore, where underpricing was kept under control by strong government intervention and/or more appropriate incentive mechanisms.
doi:10.2139/ssrn.626323 fatcat:ymugs7it3ncf7ozjjzjq4lqgdy
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Winston T.H. Koh, Roberto S. Mariano, Andrey D. Pavlov, Sock Yong Phang, Augustine H.H. Tan, Susan M. Wachter. "Bank Lending and Real Estate in Asia: Market Optimism and Asset Bubbles." Social Science Research Network (2004)