1. พฤติกรรมเชื่อมั่นเกินตัว กับภาวะฟองสบู่ใน อสังหาริมทรัพย์ O verconfidence, Rational Bubble, and Trading in Property Market 8 January 2007

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

3. Introduction T he issue of asset price bubble is by no means the new topic in macroeconomics and financial economics theory. D espite economists and policy makers have long been fascinated in such phenomena, asset price bubbles are still not well understood! O verconfidence, Rational Bubble, and Trading in Property Market Asset Price Bubble

4. A sset price bubbles, therefore, represent a challenge to economists and policy makers because some fundamental questions have not been answered in a convincing manner. H ow does one define an asset price bubble in a practical way? How can we identify an asset price bubble O verconfidence, Rational Bubble, and Trading in Property Market Asset Price Bubble

5. Asset Price Bubble? O verconfidence, Rational Bubble, and Trading in Property Market “ A sset 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 O verconfidence, Rational Bubble, and Trading in Property Market 1971-lates 1970’s 1986-1997 T he Second Boom and Bust in Property Market Subdivision : (1976-lates 1970’s) T he Greatest Boom and Bust in the Property Market : (1986-1997) T he First Boom and Bust in the Property Market : (1971-1974)

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

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

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

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

11. where O verconfidence, Rational Bubble, and Trading in Property Market

12. How to Solve for the Value of Building Option? O verconfidence, Rational Bubble, and Trading in Property Market “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

13. Finite Difference Method O verconfidence, Rational Bubble, and Trading in Property Market D ue 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)

14. The Optimal Stopping Time for Building Option O verconfidence, Rational Bubble, and Trading in Property Market I n 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. H owever, 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” O verconfidence, Rational Bubble, and Trading in Property Market

16. The conditional mean of the beliefs of agents in group A T he conditional mean of the beliefs of agents in group A can be presented by the three-dimensional Brownian motions which is O verconfidence, Rational Bubble, and Trading in Property Market

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

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

20. The Optimal Stopping Time for Building Option T o 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) O verconfidence, Rational Bubble, and Trading in Property Market

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

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

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

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

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

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

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

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

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

31. Limitation of the Study O verconfidence, Rational Bubble, and Trading in Property Market 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).

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

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