The Effects of Experience on Investor Behavior: Evidence from India's IPO Lotteries

60 Pages Posted: 24 Feb 2015 Last revised: 10 Jul 2015

Santosh Anagol

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

Vimal Balasubramaniam

University of Oxford, Said Business School; Oxford-Man Institute of Quantitative Finance

Tarun Ramadorai

Imperial College London; Centre for Economic Policy Research (CEPR)

Date Written: July 9, 2015

Abstract

We exploit the randomized allocation of stocks in 54 Indian IPO lotteries to 1.5 million investors between 2007 and 2012 to provide new estimates of the causal effect of investment experiences on future investment behavior. We find that investors experiencing exogenous gains in IPO stocks (the treatment) are more likely to apply for future IPOs, increase trading in their portfolios, exhibit a stronger disposition effect, and tilt their portfolios towards the sector of the treatment IPO. Treatment effects vary with the characteristics of the treatment (size, variability, and salience of the gain), and are stronger for smaller and younger accounts. Treatment effects persist for larger and older accounts, suggesting that experiencing gains exerts a powerful force even on sophisticated players.

Keywords: investor behavior, experience, investment, disposition effect, familiarity, lotteries, causal inference, India

JEL Classification: G12, G14, D83, C9

Suggested Citation

Anagol, Santosh and Balasubramaniam, Vimal and Ramadorai, Tarun, The Effects of Experience on Investor Behavior: Evidence from India's IPO Lotteries (July 9, 2015). 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

University of Oxford, Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
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 )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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