Investor Experiences and Financial Market Dynamics

Ulrike Malmendier, Demian Pouzo and Victoria Vanasco ()

No 24697, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E03 G02 G11 G12 (search for similar items in EconPapers)
Date: 2018-06
New Economics Papers: this item is included in nep-dge
Note: AP IFM
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Citations: View citations in EconPapers (15)

Published as Ulrike Malmendier & Demian Pouzo & Victoria Vanasco, 2019. "Investor Experiences and Financial Market Dynamics," Journal of Financial Economics, .

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Journal Article: Investor experiences and financial market dynamics (2020)
Working Paper: Investor Experiences and Financial Market Dynamics (2019)
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