The Effects of Experience on Investor Behavior: Evidence from India's IPO Lotteries
60 Pages Posted: 24 Feb 2015 Last revised: 10 Jul 2015
Date Written: July 9, 2015
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: Suggested Citation