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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Leverage and beliefs: personal experience and risk taking in margin lending
Organization Unit
  • Peter Koudijs
  • Hans-Joachim Voth
  • English
Institution University of Zurich
Series Name Working paper series / Department of Economics
Number 148
ISSN 1664-7041
Number of Pages 67
Date 2014
Abstract Text 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.
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Keywords Leverage, collateralized lending, haircuts, personal experience, collateralized debt obligation, Verhalten, Verhaltensökonomie, Verhaltensmodifikation, Risikobereitschaft, Risikoverhalten, Geschichte