Learning from Noise: Evidence from India’s IPO Lotteries
82 Pages Posted: 24 Feb 2015 Last revised: 31 Jul 2019
Date Written: July 30, 2019
We study a natural experiment in which 1.5 million investors participate in allocation lotteries for Indian IPO stocks. Randomized IPO gains cause winning investors to substantially increase portfolio trading volume in non-IPO stocks relative to lottery losers; the effects are symmetrically negative for experienced losses. These results are best explained by a model where agents learn from random experience about their own ability to operate in the market environment. Investors who have received multiple past IPO allocations show smaller responses, suggesting 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
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