NBER

Demian Pouzo

University of California at Berkeley
530-1 Evans Hall #3880
Berkeley, CA 94720

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: University of California at Berkeley

NBER Working Papers and Publications

June 2019Investor Experiences and International Capital Flows
with Ulrike Malmendier, Victoria Vanasco
in NBER International Seminar on Macroeconomics 2019, Kristin Forbes and Pierre-Olivier Gourinchas, organizers
We propose a novel explanation for classic international macro puzzles regarding capital flows and portfolio investment, which builds on modern macro-finance models of experience-based belief formation. Individual experiences of past macroeconomic outcomes have been shown to exert a long-lasting influence on beliefs about future realizations, and to explain domestic stock-market investment. We argue that experience effects can explain the tendency of investors to hold an over proportional fraction of their equity wealth in domestic stocks (home bias), to invest in domestic equity markets in periods of domestic crises (retrenchment), and to withdraw capital from foreign equity markets in periods of foreign crises (fickleness). Experience-based learning generates additional implications rega...
June 2018Investor Experiences and Financial Market Dynamics
with Ulrike Malmendier, Victoria Vanasco: w24697
How do macro-financial shocks affect investor behavior and market dynamics? Recent evidence suggests long-lasting effects of personally experienced outcomes on investor beliefs and investment but also significant differences across older and younger generations. We formalize experience-based learning in an OLG model, where different cross-cohort experiences generate persistent heterogeneity in beliefs, portfolio choices, and trade. The model allows us to characterize a novel link between investor demographics and the dependence of prices on past dividends, while also generating known features of asset prices, such as excess volatility and return predictability. The model produces new implications for the cross-section of asset holdings, trade volume, and investors' heterogeneous responses ...

Published: Ulrike Malmendier & Demian Pouzo & Victoria Vanasco, 2019. "Investor Experiences and Financial Market Dynamics," Journal of Financial Economics, .

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