Learning from Noise: Evidence from India’s IPO Lotteries

96 Pages Posted: 24 Feb 2015 Last revised: 8 Sep 2020

See all articles by Santosh Anagol

Santosh Anagol

University of Pennsylvania - Wharton School of Business - Business Economics and Public Policy Department

Vimal Balasubramaniam

Queen Mary University of London

Tarun Ramadorai

Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: June 19, 2020

Abstract

We study a natural experiment in which 1.5 million investors participate in allocation lotteries for Indian IPO stocks. Investors who win the lottery and obtain IPO stocks that rise in value increase portfolio trading volume in non-IPO stocks relative to lottery losers; the effects are negative for lottery winners obtaining IPO stocks that fall in value. A model where agents learn from random experience about their ability to operate in the market environment best explains the results. Investors who have received multiple past IPO allocations show smaller responses, suggesting that learning/selection moderates these responses to noise shocks.

Keywords: investor behavior, experience, investment, learning, lotteries, causal inference, India, noise trading

JEL Classification: G12, G14, D83, C9

Suggested Citation

Anagol, Santosh and Balasubramaniam, Vimal and Ramadorai, Tarun, Learning from Noise: Evidence from India’s IPO Lotteries (June 19, 2020). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2568748 or http://dx.doi.org/10.2139/ssrn.2568748

Santosh Anagol

University of Pennsylvania - Wharton School of Business - Business Economics and Public Policy Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6372
United States

Vimal Balasubramaniam

Queen Mary University of London ( email )

Mile End Rd
Mile End Road
London, London E1 4NS
United Kingdom

Tarun Ramadorai (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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