Mortgage Put Options and Real Estate Markets
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Real Estate Papers
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real estate bubble
mortgage lending put options
Asian financial crisis
Real Estate
mortgage lending put options
Asian financial crisis
Real Estate
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Pavlov, Andrey
Wachter, Susan M
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Abstract
In this paper we offer direct evidence that financial intermediation does impact underlying asset markets. We develop a specific observable symptom of a banking system that underprices the put option imbedded in non-recourse asset-backed lending. Using a dataset for 19 countries and over 500 real estate investment trusts, 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.
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2009-01-01
Journal title
The Journal of Real Estate Finance and Economics