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
March 29, 2013
This paper reports evidence that individual investors in Indian equities hold better performing portfolios as they become more experienced in the equity market. Experienced investors tilt their portfolios profi tably towards value stocks and stocks with low turnover, but these tilts do not fully explain their good performance. Experienced investors also tend to have lower turnover and disposition bias. These behaviors, as well as underdiversifi cation, diminish when investors experience poor returns resulting from them, consistent with models of reinforcement learning. Indian stocks held by experienced, well diversifi ed, low-turnover and low-disposition-bias investors deliver higher average returns even controlling for a standard set of stock-level characteristics.
Number of Pages in PDF File: 51
Keywords: learning, feedback, investing, stock trading, disposition effect, diversification, turnover, India
JEL Classification: G12, G14, D83working papers series
Date posted: November 17, 2012 ; Last revised: November 18, 2013
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