Do Investors Learn from Experience? Evidence from Frequent IPO Investors

Review of Financial Studies, Forthcoming

45 Pages Posted: 19 Mar 2009 Last revised: 16 Dec 2015

See all articles by Yao-Min Chiang

Yao-Min Chiang

National Taiwan University - Department of Finance

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Yiming Qian

University of Connecticut

Ann E. Sherman

DePaul University

Date Written: November 14, 2010

Abstract

We examine how experience affects the decisions of individual investors and institutions in IPO auctions to bid in subsequent auctions, and their bidding returns. We track bidding histories for all 31,476 individual investors and 1,232 institutional investors across all 84 IPO auctions during 1995-2000 in Taiwan. For individual bidders: (1) high returns in previous IPO auctions increase the likelihood of participating in future auctions; (2) bidders’ returns decrease as they participate in more auctions; (3) auction selection ability deteriorates with experience; and (4) bidders with greater experience bid more aggressively. These findings are consistent with naïve reinforcement learning wherein individuals become unduly optimistic after receiving good returns. In sharp contrast, there is little sign that institutional investors exhibit such behavior.

Keywords: IPO, auction, investor behavior, learning, reinforcement learning, institutional investor, individual investor, experience

JEL Classification: G15, G24, G32

Suggested Citation

Chiang, Yao-Min and Hirshleifer, David A. and Qian, Yiming and Sherman, Ann E., Do Investors Learn from Experience? Evidence from Frequent IPO Investors (November 14, 2010). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1363965

Yao-Min Chiang

National Taiwan University - Department of Finance ( email )

No.1 Sec. 4, Roosevelt Rd.
Taipei, 10605
Taiwan
+886 -2 -33661089 (Phone)

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yiming Qian (Contact Author)

University of Connecticut ( email )

2100 Hillside Road U-1041F, Room 452
Storrs, CT 06269
United States
860-486-2774 (Phone)

Ann E. Sherman

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-5499 (Phone)

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