Investor experiences and financial market dynamics

Ulrike Malmendier, Demian Pouzo and Victoria Vanasco ()

Journal of Financial Economics, 2020, vol. 136, issue 3, 597-622

Abstract: How do macrofinancial shocks affect investor behavior and market dynamics? Recent evidence on experience effects suggests a long-lasting influence 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 overlapping generations (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 crises, which we show to be in line with the data.

Keywords: Experience effects; Learning; Asset prices; Portfolio choice; Demographics (search for similar items in EconPapers)
JEL-codes: E7 G11 G12 G40 G41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X19302703
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Investor Experiences and Financial Market Dynamics (2019)
Working Paper: Investor Experiences and Financial Market Dynamics (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:136:y:2020:i:3:p:597-622

DOI: 10.1016/j.jfineco.2019.11.002

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().