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http://ssrn.com/abstract=2176222
 
 

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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)

Tarun Ramadorai


University of Oxford - Said Business School; University of Oxford - Oxford-Man Institute of Quantitative Finance; Centre for Economic Policy Research (CEPR)

Benjamin Ranish


Harvard University - Faculty of Arts and Sciences

December 1, 2014


Abstract:     
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

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Date posted: November 17, 2012 ; Last revised: December 5, 2014

Suggested Citation

Campbell, John Y. and Ramadorai, Tarun and Ranish, Benjamin, Getting Better or Feeling Better? How Equity Investors Respond to Investment Experiences (December 1, 2014). Available at SSRN: http://ssrn.com/abstract=2176222 or http://dx.doi.org/10.2139/ssrn.2176222

Contact Information

John Y. Campbell
Harvard University - Department of Economics ( email )
Littauer Center
Room 213
Cambridge, MA 02138
United States
617-496-6448 (Phone)
617-495-7730 (Fax)
HOME PAGE: http://scholar.harvard.edu/campbell
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Tarun Ramadorai (Contact Author)
University of Oxford - Said Business School ( email )
Park End Street
Oxford, OX1 1HP
Great Britain
+44 1865 278 816 (Phone)
+44 1865 288 805 (Fax)
HOME PAGE: http://www.tarunramadorai.com
University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )
Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Benjamin Ranish
Harvard University - Faculty of Arts and Sciences ( email )
1875 Cambridge Street
Cambridge, MA 02138
United States
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