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Did investors regard real estate as 'safe' during the 'Japanese Bubble' in the 1980s?

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  • Serdat Dinc
  • Patrick M. McGuire

Abstract

It is well known that Japanese banks increased their exposure to land assets and the real estate sector in the latter half of the 1980s, and that this became a primary factor in the non-performing loan problem that emerged in the 1990s. What is less clear is whether this increased exposure was the result of active risk taking, and whether banks and other market participants regarded land and real estate assets as "risky" during the period of land price appreciation. To address this issue, we rely on the real estate data contained in corporate balance sheets to extract an estimate of the market sentiment toward land assets during the 1985-89 period. We find that the systematic risk of manufacturing companies increased with their real estate holdings but not with holdings of other balance sheet assets. This result indicates that market participants regarded real estate assets as riskier than the main operations of manufacturing companies during the "bubble period", even if they may not have foreseen the subsequent crash in real estate prices.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 164.

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Length: 37 pages
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:bis:biswps:164

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Keywords: Japanese land prices;

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  1. Jarrow, Robert & Rudd, Andrew, 1983. "A comparison of the APT and CAPM a note," Journal of Banking & Finance, Elsevier, vol. 7(2), pages 295-303, June.
  2. Tokuo Iwaisako, 2003. "Household Portfolios in Japan," NBER Working Papers 9647, National Bureau of Economic Research, Inc.
  3. Ogawa, K. & Suzuki, K., 1995. "Land Value and Corporate Investment: Evidence from Japanese Panel Data," ISER Discussion Paper 0373, Institute of Social and Economic Research, Osaka University.
  4. Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, vol. 7(2), pages 197-226, June.
  5. Takatoshi Ito & Tokuo Iwaisako, 1995. "Explaining Asset Bubbles in Japan," NBER Working Papers 5358, National Bureau of Economic Research, Inc.
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