TY - JOUR
T1 - Leverage and beliefs
T2 - Personal experience and risk-taking in margin lending
AU - Koudijs, Peter
AU - Voth, Hans Joachim
PY - 2016/11
Y1 - 2016/11
N2 - 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 D12, D14, D83, G11, G21).
AB - 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 D12, D14, D83, G11, G21).
UR - http://www.scopus.com/inward/record.url?scp=84994372646&partnerID=8YFLogxK
U2 - 10.1257/aer.20140259
DO - 10.1257/aer.20140259
M3 - Article
AN - SCOPUS:84994372646
VL - 106
SP - 3367
EP - 3400
JO - American Economic Review
JF - American Economic Review
SN - 0002-8282
IS - 11
ER -