Do Investors Overweight Personal Experience? Evidence from IPO Subscriptions

Posted: 27 Oct 2008

See all articles by Markku Kaustia

Markku Kaustia

Aalto University School of Business

Samuli Knüpfer

BI Norwegian Business School; Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 2 versions of this paper

Date Written: October 24, 2008

Abstract

We find a strong positive link between past IPO returns and future subscriptions at the investor level in Finland. Our setting allows us to trace this effect to the returns personally experienced by investors; the effect is not explained by patterns related to the IPO cycle, or wealth effects. This behavior is consistent with reinforcement learning, where personally experienced outcomes are overweighted compared to rational Bayesian learning. The results provide a microfoundation for the argument that investor sentiment drives IPO demand. The paper also contributes to understanding how popular investment styles develop, and has implications for the marketing of financial products.

Suggested Citation

Kaustia, Markku and Knüpfer, Samuli, Do Investors Overweight Personal Experience? Evidence from IPO Subscriptions (October 24, 2008). Journal of Finance, Vol. 63, No. 6, 2008. Available at SSRN: https://ssrn.com/abstract=1289254

Markku Kaustia (Contact Author)

Aalto University School of Business ( email )

P.O. Box 1210
Helsinki, 00100
Finland
+3589 4313 8475 (Phone)
+3589 4313 8678 (Fax)

Samuli Knüpfer

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

HOME PAGE: http://www.samuliknupfer.com

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

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