Investor Experiences and Financial Market Dynamics

80 Pages Posted: 13 Jun 2018

See all articles by Ulrike Malmendier

Ulrike Malmendier

University of California, Berkeley - Department of Economics; University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Demian Pouzo

University of California, Berkeley - Department of Economics

Victoria Vanasco

CREi ; Barcelona GSE; CEPR

Date Written: June 2018

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.

Suggested Citation

Malmendier, Ulrike and Pouzo, Demian and Vanasco, Victoria, Investor Experiences and Financial Market Dynamics (June 2018). NBER Working Paper No. w24697, Available at SSRN: https://ssrn.com/abstract=3194927

Ulrike Malmendier (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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HOME PAGE: http://www.econ.berkeley.edu/~ulrike/

University of California, Berkeley - Haas School of Business ( email )

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National Bureau of Economic Research (NBER)

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Demian Pouzo

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Victoria Vanasco

CREi ( email )

RAMON TRIAS FARGAS 25-27
Barcelona, 08005
Spain
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HOME PAGE: http://https://sites.google.com/site/vicovanasco

Barcelona GSE ( email )

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Spain

CEPR ( email )

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