Investors' Overconfidence in Primary Markets

30 Pages Posted: 27 Aug 2007

See all articles by Yenshan Hsu

Yenshan Hsu

National Chengchi University at Taiwan - Department of Finance

Cheng-Yi Shiu

National Central University at Taiwan - Department of Finance

Date Written: August 10, 2007

Abstract

We test whether investors in primary markets also exhibit overconfidence. Using data from 77 Taiwanese discriminatory IPO auctions, we test the overconfidence hypothesis for three types of investors (i.e. bidders in auctions): male individuals, female individuals, and institutional investors. We find that the male, the female, and institutional investors in our sample do indeed exhibit overconfidence in bidding for IPO shares; the male have a higher degree of overconfidence than do the female and the institutional investors. We further test whether the overconfidence found stems from self-attribution bias, which in our study might suggest that investors who gain from previous IPOs will bid subsequent IPOs with a more aggressive price, while investors who lose in previous IPOs do not recede in their bidding price for subsequent IPOs. Our results document such evidence for individual investors.

Keywords: Overconfidence, Self-attribution bias, IPO auctions

JEL Classification: G19, G24

Suggested Citation

Hsu, Yenshan and Shiu, Cheng-Yi, Investors' Overconfidence in Primary Markets (August 10, 2007). 20th Australasian Finance & Banking Conference 2007 Paper. Available at SSRN: https://ssrn.com/abstract=1009341 or http://dx.doi.org/10.2139/ssrn.1009341

Yenshan Hsu

National Chengchi University at Taiwan - Department of Finance ( email )

Taipei, 11623
Taiwan

Cheng-Yi Shiu (Contact Author)

National Central University at Taiwan - Department of Finance ( email )

No. 300, Jhongda Rd, Jhogli City, Taoyuan, Taiwan,
Jhongli, TY 32001
Taiwan

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