Abstract

http://ssrn.com/abstract=2176222
 
 

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Getting Better or Feeling Better? How Equity Investors Respond to Investment Experience


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

March 10, 2014


Abstract:     
Using a large representative sample of Indian retail equity investors, many of them new to the stock market, we show that both years of investment experience and feedback from investment returns have significant effects on investor behavior, favored stock styles, and performance. We identify two channels of feedback: performance relative to the market, and the directly-experienced returns to behavior and styles of stock. Both of these vary across investors at a point in time because investors are imperfectly diversified and receive idiosyncratic returns. We find that experienced investors generally behave in a manner more consistent with the recommendations of finance theory, although this tendency is weakened by strong investment performance. High trading profits increase turnover, while high returns to equity styles have a short-term negative and a longer-term positive effect on investors' style demands, possibly reflecting the offsetting effects of disposition bias and style chasing. We document high returns on a portfolio of stocks held by experienced investors, and on individual Indian stocks with an experienced and low-turnover investor base.

Number of Pages in PDF File: 64

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: March 11, 2014

Suggested Citation

Campbell, John Y. and Ramadorai, Tarun and Ranish, Benjamin, Getting Better or Feeling Better? How Equity Investors Respond to Investment Experience (March 10, 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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