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

Hans-Joachim Voth and Peter Koudijs

No 9920, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 as before. The differential change is remarkable since the distress was public knowledge. Overall leverage in the Amsterdam stock market declined as a result.

Keywords: Leverage; Collateralized lending; Haircuts; Personal experience (search for similar items in EconPapers)
Date: 2014-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://cepr.org/publications/DP9920 (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: Leverage and Beliefs: Personal Experience and Risk-Taking in Margin Lending (2016)
Working Paper: Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending (2014)
Working Paper: Leverage and Beliefs: Personal Experience and Risk Taking in Margin Lending (2014)
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:9920

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP9920

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 ().