Finance and Economics Discussion Series (FEDS)

Twitter Share RSS

May 2012

Learning from Experience in the Stock Market

Anton Nakov

Abstract:

We study the dynamics of a Lucas-tree model with finitely lived individuals 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 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.

Full paper (Screen Reader Version)

Keywords: Learning from experience, OLG, asset pricing, bubbles, heterogeneous agents

PDF: Full Paper

Back to Top
Last Update: July 10, 2020