พฤติกรรมเชื่อมั่นเกินตัวกับภาวะฟองสบู่ในอสังหาริมทรัพย์

1. พฤติกรรมเชื่อมั่นเกินตัวกับภาวะฟองสบู่ในอสังหาริมทรัพย์พฤติกรรมเชื่อมั่นเกินตัวกับภาวะฟองสบู่ในอสังหาริมทรัพย์ Overconfidence, Rational Bubble, and Trading in Property Market 8 January 2007

2. Acknowledgement • อาจารย์ที่ปรึกษา รศ.ดร.อารยะ ปรีชาเมตตา • ผศ.ดร ธาตรี จันทโคลิกะ ผศ.ดร สิทธิศักดิ์ ลีลหานนท์ และ ดร. ดามิศา มุกด์มณี • Dr. Mike Sussman from Department of Mathematics, University of Pittsburgh. • คณะเศรษฐศาสตร์ ธรรมศาสตร์ • ธนาคารแห่งประเทศไทย • ครอบครัว และเพื่อนๆทุกคน Overconfidence, Rational Bubble, and Trading in Property Market

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! Asset Price Bubble Overconfidence, Rational Bubble, and Trading in Property Market

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 Asset Price Bubble Overconfidence, Rational Bubble, and Trading in Property Market

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 Overconfidence, Rational Bubble, and Trading in Property Market

6. The Property bubble in Thailand 1986-1997 1971-lates 1970’s The First Boom and Bust in the Property Market : (1971-1974) The Second Boom and Bust in Property Market Subdivision : (1976-lates 1970’s) The Greatest Boom and Bust in the Property Market : (1986-1997) Overconfidence, Rational Bubble, and Trading in Property Market

7. Scope of Thesis This study explores ways to identify and deal with a possibility of future real estate bubble appropriately We study the role of behavioral biases in determining the volatility of property price by employing the model of property price with heterogeneous beliefs Overconfidence, Rational Bubble, and Trading in Property Market

8. Preechametta (2005) Model Building Option Vacant Lands Investors group Investors group Resale Option Overconfidence, Rational Bubble, and Trading in Property Market

9. Methodology and Research Design Part: Methodology Resale Option • Using the Explicit Solution • (Scheinkman and Xiong (2003)) Building Option • Employing the Finite • Difference Method • Monte Carlo Simulation Overconfidence, Rational Bubble, and Trading in Property Market

10. The Valuation of the Building Option Overconfidence, Rational Bubble, and Trading in Property Market

11. where Overconfidence, Rational Bubble, and Trading in Property Market

12. How to Solve for the Value of Building Option? “The price of the building option can be obtained by solving a time dependent complementary problem” Our problem are involved with the partial differential equation which has the following characteristics • First, it is the linear second-order equation • Second, it is the parabolic equation. • Therefore, our problem is the two dimensional parabolic partial differential problem Overconfidence, Rational Bubble, and Trading in Property Market

13. Finite Difference Method Due to the lack of the closed form solution for the real option pricing-building option, We therefore employ the mathematic technique applied widely in financial engineering which is called “Finite Difference Method”-(FDM) Overconfidence, Rational Bubble, and Trading in Property Market

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. Overconfidence, Rational Bubble, and Trading in Property Market

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” Overconfidence, Rational Bubble, and Trading in Property Market

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 Overconfidence, Rational Bubble, and Trading in Property Market

17. The conditional mean of the beliefs of agents in group A It is the standard wiener process Overconfidence, Rational Bubble, and Trading in Property Market

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. Overconfidence, Rational Bubble, and Trading in Property Market

19. Simulation: Conditional mean of agent in group A For the initial value of the conditional mean of agents in group A , we assume it equals to 0.03 Overconfidence, Rational Bubble, and Trading in Property Market

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) Overconfidence, Rational Bubble, and Trading in Property Market

21. Policy Simulation The Effect of Real Interest Rate The Effect of Overconfidence Level The Effect of Long-Run Fundamental The Effect of Information in Signal The Effect of Resale Cost The Value of Resale Option The Value of Building Option

22. The effect of real interest rate on the resale option The Effect of Real Interest Rate On Trading Barrier

23. The effect of real interest rate on the resale option The Effect of Real Interest Rate On Size of Bubble

24. The effect of real interest rate on the resale option The Effect of Real Interest Rate On Expected Duration Between Trade

25. The effect of real interest rate on the resale option The Effect of Real Interest Rate On Extra Volatility Component

26. The effect of real interest rate on the optimal stopping time to develop land to be building Overconfidence, Rational Bubble, and Trading in Property Market

27. The effect of resale cost on the optimal stopping time to develop land to be building Overconfidence, Rational Bubble, and Trading in Property Market

28. The effect of overconfidence level on the optimal stopping time to develop land to be building Overconfidence, Rational Bubble, and Trading in Property Market

29. The effect of long-run fundamental on the optimal stopping time to develop land to be building Overconfidence, Rational Bubble, and Trading in Property Market

30. The effect of information in signal on the optimal stopping time to develop land to be building Overconfidence, Rational Bubble, and Trading in Property Market

31. Limitation of the Study • Inadequacy of Thailand’s property market database. • Some variables need to be identified more clearly such as overconfidence level, the speed of adjustment of difference in beliefs (See Alpert and Raiffa (1982). Overconfidence, Rational Bubble, and Trading in Property Market

32. The suggestion • It is interesting to extend the model to has other choices for land owner to develop his vacant land. Overconfidence, Rational Bubble, and Trading in Property Market

33. KOB KHUN KAB Overconfidence, Rational Bubble, and Trading in Property Market