Learning from Experience in the Stock Market
Anton Nakov and
Nuño, Galo
Authors registered in the RePEc Author Service: Galo Nuño Barrau
No 9845, CEPR Discussion Papers from C.E.P.R. Discussion Papers
Abstract:
New evidence suggests that individuals "learn from experience," meaning they learn from events occurring during their own lifetimes as opposed to the entire history of events. Moreover, they weigh more heavily the more recent events compared to events occurring in the more distant past. This paper analyzes the implications of such learning for stock pricing in a model with finitely-lived agents. Individuals learn about the rate of change of the stock price and of dividends using a weighted decreasing-gain algorithm. Information is dispersed across age cohorts with older agents having larger information sets than younger ones. In the model, the stock price exhibits stochastic fluctuations around the rational expectations equilibrium due to successive waves of optimism and pessimism. We demonstrate how this heterogeneous-beliefs model can be approximated by an economy with a representative agent who updates his beliefs following a constant-gain learning scheme. The aggregate gain parameter of the approximation is a nonlinear function of the survival rate and of the individual gain parameters.
Keywords: Asset pricing; Constant-gain learning; Dispersed beliefs; Heterogeneous beliefs; Olg (search for similar items in EconPapers)
JEL-codes: D83 D84 G12 (search for similar items in EconPapers)
Date: 2014-02
New Economics Papers: this item is included in nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)
Downloads: (external link)
https://cepr.org/publications/DP9845 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
Related works:
Journal Article: Learning from experience in the stock market (2015) 
Working Paper: Learning from experience in the stock market (2012) 
Working Paper: Learning from experience in the stock market (2011) 
Working Paper: Learning from experience in the stock market (2011) 
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:cpr:ceprdp:9845
Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP9845
orders@cepr.org
Access Statistics for this paper
More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by (repec@cepr.org).