Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending

41 Pages Posted: 10 Mar 2014 Last revised: 12 Jan 2022

See all articles by Peter Koudijs

Peter Koudijs

Erasmus University Rotterdam

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society; Centre for Economic Policy Research (CEPR)

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Date Written: March 2014

Abstract

What determines risk-bearing capacity and the amount of leverage in financial markets? Using unique archival data on collateralized lending, we show that personal experience can affect individual risk-taking and aggregate leverage. When an investor syndicate speculating in Amsterdam in 1772 went bankrupt, many lenders were exposed. In the end, none of them actually lost money. Nonetheless, only those at risk of losing money changed their behavior markedly – they lent with much higher haircuts. The rest continued largely as before. The differential change is remarkable since the distress was public knowledge. Overall leverage in the Amsterdam stock market declined as a result.

Suggested Citation

Koudijs, Peter and Voth, Hans-Joachim, Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending (March 2014). NBER Working Paper No. w19957, Available at SSRN: https://ssrn.com/abstract=2406759

Peter Koudijs (Contact Author)

Erasmus University Rotterdam ( email )

Burgemeester Oudlaan 50
Rotterdam, 3062PA
Netherlands

HOME PAGE: http://sites.google.com/view/peter-koudijs/home?authuser=0

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society ( email )

Raemistrasse 71
Zuerich, 8006
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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