Overconfidence, Rational Bubble, and Trading in Property Market

1. ??????????????????????????????????????????????????????? Overconfidence, Rational Bubble, and Trading in Property Market

2. Acknowledgement ???????????????? ??.??.????? ?????????? ??.?? ????? ?????????? ??.?? ??????????? ????????? ??? ??. ?????? ???????? Dr. Mike Sussman from Department of Mathematics, University of Pittsburgh. ?????????????? ?????????? ??????????????????? ???????? ???????????????

3. Introduction The issue of asset price bubble is by no means the new topic in macroeconomics and financial economics theory. Despite economists and policy makers have long been fascinated in such phenomena, asset price bubbles are still not well understood!

4. Asset price bubbles, therefore, represent a challenge to economists and policy makers because some fundamental questions have not been answered in a convincing manner. How does one define an asset price bubble in a practical way? How can we identify an asset price bubble

5. Asset Price Bubble? �Asset price bubble is the situation that asset or output prices which increase at a rate that is greater than another one explained by market fundamental� Kindleberger 1992

6. The Property bubble in Thailand

7. Scope of Thesis

8. Preechametta (2005) Model

10. The Valuation of the Building Option

11. where

12. How to Solve for the Value of Building Option?

13. Finite Difference Method

14. The Optimal Stopping Time for Building Option In each period we can know whether it is the optimal stopping time to convert land to be building or not by comparing the value of building option with the value of immediately gain from converting land at that time.

15. However, in order to compare it, we should know the value of the conditional mean of the beliefs of agents in group A which is the land owners and the conditional mean of the beliefs of agents in group B. We can generate these values by �the Monte Carlo simulation method�

16. The conditional mean of the beliefs of agents in group A The conditional mean of the beliefs of agents in group A can be presented by the three-dimensional Brownian motions which is

18. The Wiener Process A wiener process-also called a Brownian motion-is a continuous-time stochastic process with the three important properties First, it is a Markov process Second, the wiener process has independent increments Third, change in the process over any finite interval of time are normally distributed.

20. The Optimal Stopping Time for Building Option To find the Density Distribution function of the optimal stopping time to develop land to be building, we should simulate the paths for each group N paths (In practice, N should be large / at least 10,000 paths for each group)

28. The effect of overconfidence level on the optimal stopping time to develop land to be building

29. The effect of long-run fundamental on the optimal stopping time to develop land to be building

30. The effect of information in signal on the optimal stopping time to develop land to be building

31. Limitation of the Study

32. The suggestion It is interesting to extend the model to has other choices for land owner to develop his vacant land.

33. KOB KHUN KAB