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

Peter Koudijs and Hans-Joachim Voth

No 19957, NBER Working Papers from National Bureau of Economic Research, Inc

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: G01 G02 G12 G21 G32 N2 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-ban and nep-hpe
Note: AP
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Published as American Economic Review, vol. 106, no. 11, November 2016 (pp. 3367-3400)

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http://www.nber.org/papers/w19957.pdf (application/pdf)

Related works:
Journal Article: Leverage and Beliefs: Personal Experience and Risk-Taking in Margin Lending (2016) 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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