Investor Experiences and Financial Market Dynamics / Ulrike Malmendier, Demian Pouzo, Victoria Vanasco.

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Malmendier, Ulrike

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w24697.Publication details: Cambridge, Mass. National Bureau of Economic Research 2018.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: How do macro-financial shocks affect investor behavior and market dynamics? Recent evidence suggests long-lasting effects of personally experienced outcomes on investor beliefs and investment but also significant differences across older and younger generations. We formalize experience-based learning in an OLG model, where different cross-cohort experiences generate persistent heterogeneity in beliefs, portfolio choices, and trade. The model allows us to characterize a novel link between investor demographics and the dependence of prices on past dividends, while also generating known features of asset prices, such as excess volatility and return predictability. The model produces new implications for the cross-section of asset holdings, trade volume, and investors' heterogeneous responses to recent financial crises, which we show to be in line with the data.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w24697 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

June 2018.

How do macro-financial shocks affect investor behavior and market dynamics? Recent evidence suggests long-lasting effects of personally experienced outcomes on investor beliefs and investment but also significant differences across older and younger generations. We formalize experience-based learning in an OLG model, where different cross-cohort experiences generate persistent heterogeneity in beliefs, portfolio choices, and trade. The model allows us to characterize a novel link between investor demographics and the dependence of prices on past dividends, while also generating known features of asset prices, such as excess volatility and return predictability. The model produces new implications for the cross-section of asset holdings, trade volume, and investors' heterogeneous responses to recent financial crises, which we show to be in line with the data.