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


  • Serdat Dinc
  • Patrick M. McGuire


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.

Suggested Citation

  • Serdat Dinc & Patrick M. McGuire, 2004. "Did investors regard real estate as 'safe' during the 'Japanese Bubble' in the 1980s?," BIS Working Papers 164, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:164

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    References listed on IDEAS

    1. Ogawa, Kazuo & Suzuki, Kazuyuki, 1998. "Land Value and Corporate Investment: Evidence from Japanese Panel Data," Journal of the Japanese and International Economies, Elsevier, vol. 12(3), pages 232-249, September.
    2. 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.
    3. Takeo Hoshi & Anil Kashyap, 2000. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Chapters,in: NBER Macroeconomics Annual 1999, Volume 14, pages 129-212 National Bureau of Economic Research, Inc.
    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, 1996. "Explaining Asset Bubbles in Japan," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 14(1), pages 143-193, July.
    6. Tokuo Iwaisako, 2003. "Household Portfolios in Japan," NBER Working Papers 9647, National Bureau of Economic Research, Inc.
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    More about this item


    Japanese land prices;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates


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