Abstract

http://ssrn.com/abstract=2000466
 
 

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Leverage and Asset Prices: An Experiment


Marco Cipriani


Federal Reserve Bank of New York

Ana Fostel


George Washington University

Daniel Houser


George Mason University - Department of Economics

February 7, 2012

GMU Working Paper in Economics No. 12-05

Abstract:     
This is the first paper to test the asset pricing implication of leverage in a laboratory. We show that as theory predicts, leverage increases asset prices: when an asset can be used as collateral (i.e., when the asset can be bought on margin), its price goes up. This increase is significant, and quantitatively close to what theory predicts. However, important deviations from the theory arise in the laboratory. First, the demand for the asset shifts when it can be used as a collateral, even though agents do not exhaust their purchasing power when collateralized borrowing is not allowed. Second, the spread between collateralizable and non-collateralizable assets does not increase during crises in contrast to what theory predicts.

Number of Pages in PDF File: 38

Keywords: leverage, asset pricing, experimental economics

JEL Classification: A10, C90, G12

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Date posted: February 8, 2012  

Suggested Citation

Cipriani, Marco and Fostel, Ana and Houser, Daniel, Leverage and Asset Prices: An Experiment (February 7, 2012). GMU Working Paper in Economics No. 12-05. Available at SSRN: http://ssrn.com/abstract=2000466 or http://dx.doi.org/10.2139/ssrn.2000466

Contact Information

Marco Cipriani
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
Ana Fostel
George Washington University ( email )
2115 G Street, NW, Suite 370
Washington, DC 20052
United States
HOME PAGE: http://home.gwu.edu/~afostel/
Daniel Houser (Contact Author)
George Mason University - Department of Economics ( email )
4400 University Drive
Fairfax, VA 22030
United States
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