Getting Better or Feeling Better? How Equity Investors Respond to Investment Experiences
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)
Board of Governors of the Federal Reserve System
December 1, 2014
Using a large representative sample of Indian retail equity investors, many of them new to the stock market, we show that recent investment experiences affect portfolio composition. Because investors are imperfectly diversified, cross-sectional variation in their investment experiences allows us to identify such feedback effects. As investors spend more time in the market, they generally adopt style tilts and trading behaviors that are more consistent with the advice of financial economists; however, good account performance slows down this transition. Investors who experience a high return to an equity style trade to reduce their style tilt in the short run but increase it in the longer run, possibly reflecting the offsetting effects of disposition bias and style chasing. We find little evidence to support the view that investors are rationally learning about their investment skill.
Number of Pages in PDF File: 60
Keywords: learning, feedback, investing, style-investing, disposition effect, diversification, turnover, India
JEL Classification: G12, G14, D83
Date posted: November 17, 2012 ; Last revised: December 5, 2014
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