Leverage and Asset Prices: An Experiment

Marco Cipriani, Ana Fostel and Daniel Houser

No 26701, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a model of leverage that is amenable to laboratory implementation and gather experimental data. We compare two identical economies: in one economy, agents cannot borrow; in the other, they can leverage a risky asset to issue debt. Leverage increases asset prices in the laboratory. This increase is significant and quantitatively close to what theory predicts. Moreover, also as theory suggests, leverage allows gains from trade to be realized in the laboratory. Finally, the mechanism generating the price increase in the lab is due to the asset role as collateral, and different from what we would observe with a simple credit line or bigger cash endowments.

JEL-codes: A10 C90 D52 D53 G10 (search for similar items in EconPapers)
Date: 2020-01
New Economics Papers: this item is included in nep-exp
Note: AP IFM ME
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Published as Cipriani, Marco & Fostel, Ana & Houser, Daniel, 2021. "Leverage and asset prices: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 700-717.

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Related works:
Journal Article: Leverage and asset prices: An experiment (2021)
Working Paper: Leverage and asset prices: an experiment (2012)
Working Paper: Leverage and Asset Prices: An Experiment (2012)
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