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Learning from experience in the stock market

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  • Nakov, Anton
  • Nuño, Galo

Abstract

We 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

Suggested Citation

  • Nakov, Anton & Nuño, Galo, 2011. "Learning from experience in the stock market," Working Paper Series 1396, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20111396
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    References listed on IDEAS

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    Cited by:

    1. Nakov, Anton & Nuño, Galo, 2015. "Learning from experience in the stock market," Journal of Economic Dynamics and Control, Elsevier, pages 224-239.
    2. Atmaz, Adem & Basak, Suleyman, 2017. "Belief Dispersion in the Stock Market," CEPR Discussion Papers 12056, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    assett pricing; bubbles; heterogeneous agents; Learning from experience; OLG;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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