Learning From Experience in the Stock Market

41 Pages Posted: 30 Nov 2011

See all articles by Anton Nakov

Anton Nakov

European Central Bank (ECB); CEPR

Galo Nuño

Banco de España

Multiple version iconThere are 4 versions of this paper

Date Written: October 26, 2011


We study the dynamics of a Lucas-tree model with finitely lived agents who "learn from experience." Individuals update expectations by Bayesian learning based on observations from their own lifetimes. In this model, the stock price exhibits stochastic boom-and-bust fluctuations around the rational expectations equilibrium. This heterogeneous-agents economy can be approximated by a representative-agent model with constant-gain learning, where the gain parameter is related to the survival rate.

Keywords: learning from experience, OLG, assett pricing, bubbles, heterogeneous agents

JEL Classification: G12, D83, D84

Suggested Citation

Nakov, Anton A. and Nuno, Galo, Learning From Experience in the Stock Market (October 26, 2011). ECB Working Paper No. 1396. Available at SSRN: https://ssrn.com/abstract=1949793

Anton A. Nakov (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

CEPR ( email )

United Kingdom

Galo Nuno

Banco de España ( email )

Alcala 50
Madrid 28014

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