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

Peter Koudijs and Hans-Joachim Voth

American Economic Review, 2016, vol. 106, issue 11, 3367-3400

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.

JEL-codes: D81 D86 G12 G14 G21 G33 N23 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20140259
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Related works:
Working Paper: Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending (2014) Downloads
Working Paper: Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending (2014) Downloads
Working Paper: Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending (2014) Downloads
Working Paper: Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending (2014) Downloads
Working Paper: Leverage and beliefs: Personal experience and risk taking in margin lending (2013) Downloads
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