Getting Better: Learning to Invest in an Emerging Stock Market
John Y. Campbell
Harvard University - Department of Economics; National Bureau of Economic Research (NBER)
University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance; Centre for Economic Policy Research (CEPR)
Harvard University - Faculty of Arts and Sciences
December 17, 2013
Using a large representative sample of Indian retail equity investors, many of them new to the stock market, we show that both feedback from investment returns and years of investment experience have a significant effect on investor behavior, style tilts, and performance. We identify two channels of feedback: overall performance relative to the market, and feedback from the impact on performance of specific behavior and style tilts. Consistent with models of reinforcement learning, feedback has strong predictive ability for future behavior and style tilts. We show that experienced investors have lower portfolio turnover, exhibit a smaller disposition effect, and invest more heavily in value stocks than novice investors, although these behaviors do not fully explain their better performance. We also find that Indian stocks held by experienced investors, or investors whose strategies resemble those of experienced investors (with low turnover and a value tilt), deliver abnormal returns even controlling for standard stock-level characteristics.
Number of Pages in PDF File: 58
Keywords: learning, feedback, investing, style-investing, disposition effect, diversification, turnover, India
JEL Classification: G12, G14, D83working papers series
Date posted: November 17, 2012 ; Last revised: December 17, 2013
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.579 seconds