Abstract

http://ssrn.com/abstract=910964
 
 

References (20)



 
 

Citations (3)



 


 



Underpriced Default Spread Exacerbates Market Crashes


Winston T.H. Koh


Singapore Management University - School of Economics & Social Sciences

Roberto S. Mariano


Singapore Management University

Andrey D. Pavlov


Simon Fraser University (SFU) - Finance Area

Sock Yong Phang


Singapore Management University - School of Economics & Social Sciences

Augustine H.H. Tan


Singapore Management University - School of Economics & Social Sciences

Susan M. Wachter


University of Pennsylvania - Wharton School, Department of Real Estate

October 9, 2006

U of Penn, Inst for Law & Econ Research Paper No. 06-13

Abstract:     
In this paper, we develop a specific observable symptom of a banking system that underprices the default spread in non-recourse asset-backed lending. Using three different data sets for 18 countries and property types, we find that, following a negative demand shock, the "underpricing" economies experience far deeper asset market crashes than economies in which the put option is correctly priced. Furthermore, only one of the countries in our sample continues to exhibit the underpricing symptom following a market crash. This indicates that market crashes have a cleansing effect and eliminate underpricing at least for a period of time. This makes investing in such markets safer following a negative demand shock.

Number of Pages in PDF File: 34

Keywords: real estate bubble, lender optimism, disaster myopia, Asian financial crisis

working papers series


Download This Paper

Date posted: June 23, 2006  

Suggested Citation

Koh, Winston T.H. and Mariano, Roberto S. and Pavlov, Andrey D. and Phang, Sock Yong and Tan, Augustine H.H. and Wachter, Susan M., Underpriced Default Spread Exacerbates Market Crashes (October 9, 2006). U of Penn, Inst for Law & Econ Research Paper No. 06-13. Available at SSRN: http://ssrn.com/abstract=910964 or http://dx.doi.org/10.2139/ssrn.910964

Contact Information

Winston T.H. Koh
Singapore Management University - School of Economics & Social Sciences ( email )
469 Bukit Timah Road
Federal Building #02-08
Singapore, 259756
Singapore
+65 6822 0853 (Phone)
+65 6822 0833 (Fax)
Roberto S. Mariano
Singapore Management University ( email )
50 Stamford Rd.
Singapore 912409, 178899
Singapore
Andrey D. Pavlov (Contact Author)
Simon Fraser University (SFU) - Finance Area ( email )
Burnaby, British Columbia V5A 1S6
Canada
604 291 5835 (Phone)
604 291 4920 (Fax)
Sock Yong Phang
Singapore Management University - School of Economics & Social Sciences ( email )
469 Bukit Timah Road
Federal Building #02-05
Singapore, 259756
Singapore
Augustine H.H. Tan
Singapore Management University - School of Economics & Social Sciences ( email )
Tanglin P.O. Box 257
Singapore 912409
Singapore
+65 6822 0379 (Phone)
+65 6822 0101 (Fax)
Susan M. Wachter
University of Pennsylvania - Wharton School, Department of Real Estate ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

Feedback to SSRN


Paper statistics
Abstract Views: 1,794
Downloads: 202
Download Rank: 86,647
References:  20
Citations:  3

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo2 in 0.344 seconds