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.
1. Introduction Excessive bank lending to the real estate sector has been noted as an explanation of the Asian financial crisis. For instance, while Sachs and Woo (2000) point to macroeconomic problems as the basis for the crisis, they also note that "too much money was poured into speculative real estate projects, e.g., in downtown Bangkok." More directly, Krugman (1998), states that "(t)he problem began with financial intermediaries - institutions whose liabilities were perceived as having an implicit government guarantee, but were essentially unregulated and therefore subject to severe moral hazard problems. The excessive risky lending of these institutions created inflation - not of goods but of asset prices." Krugman goes on to identify the need for a more complex analysis of the Asian financial crisis based on an option value approach.download
Tidak ada komentar:
Posting Komentar