Leverage and asset prices: An experiment

By Marco Cipriani, A. Fostel, Daniel Houser. Journal of Economic Behavior and Organization, 2012

256 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/14f4dbd9e728eef7b3cd816709707878bf3d2a79

Citations in the corpus

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• When Credit Bites Back (2013, unknown): “…factors play an important role in the modern business cycle, as exemplified in the work of Fisher (1933) and Minsky (1986)—or more recently, Battacharya, Goodhart, Tsomocos, and Vardoulakis (2011), Adrian and Shin (2012), Eggertsson and Krugman (2012), or Brunnermeier et al. (2012), for example.”
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