Advanced Search
MyIDEAS: Login

Leverage and Asset Prices: An Experiment

Contents:

Author Info

  • Marco Cipriani

    ()
    (International Monetary Fund and New York Federal Reserve Bank)

  • Ana Fostel

    ()
    (Department of Economics, George Washington University)

  • Daniel Houser

    ()
    (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)

Abstract

This is the first paper to test the asset pricing implication of leverage in a laboratory. We show that as theory predicts, leverage increases asset prices: when an asset can be used as collateral (i.e., when the asset can be bought on margin), its price goes up. This increase is significant, and quantitatively close to what theory predicts. However, important deviations from the theory arise in the laboratory. First, the demand for the asset shifts when it can be used as a collateral, even though agents do not exhaust their purchasing power when collateralized borrowing is not allowed. Second, the spread between collateralizable and non-collateralizable assets does not increase during crises in contrast to what theory predicts. Length: 38

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://repec.ices-experiments.org/pdf/1033.pdf
Download Restriction: no

Bibliographic Info

Paper provided by George Mason University, Interdisciplinary Center for Economic Science in its series Working Papers with number 1033.

as in new window
Length:
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:gms:wpaper:1033

Contact details of provider:
Postal: 3330 Washington Blvd., Arlington, VA 22201
Phone: 703-993-4850
Fax: 703-993-4851
Email:
Web page: http://ices.gmu.edu/
More information through EDIRC

Related research

Keywords: Leverage; Asset Pricing; Experimental Economics;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Fostel, Ana & Geanakoplos, John, 2012. "Why does bad news increase volatility and decrease leverage?," Journal of Economic Theory, Elsevier, vol. 147(2), pages 501-525.
  2. Plott, Charles R & Sunder, Shyam, 1982. "Efficiency of Experimental Security Markets with Insider Information: An Application of Rational-Expectations Models," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 663-98, August.
  3. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:gms:wpaper:1033. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stan Tsirulnikov).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.