Learning from experience in the stock market
AbstractWe study the dynamics of a Lucas-tree model with finitely lived agents who "learn from experience." Individuals update expectations by Bayesian learning based on observations from their own lifetimes. In this model, the stock price exhibits stochastic boom-and-bust fluctuations around the rational expectations equilibrium. This heterogeneous-agents economy can be approximated by a representative-agent model with constant-gain learning, where the gain parameter is related to the survival rate. JEL Classification: G12, D83, D84
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1396.
Date of creation: Nov 2011
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Other versions of this item:
- Anton Nakov & Galo Nuño, 2011. "Learning from experience in the stock market," Banco de Espaï¿½a Working Papers 1132, Banco de Espa�a.
- Anton Nakov, 2012. "Learning from experience in the stock market," Finance and Economics Discussion Series 2012-41, Board of Governors of the Federal Reserve System (U.S.).
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-13 (All new papers)
- NEP-CBA-2011-12-13 (Central Banking)
- NEP-DGE-2011-12-13 (Dynamic General Equilibrium)
- NEP-FMK-2011-12-13 (Financial Markets)
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