Learning from Noise: Evidence from India’s IPO Lotteries

65 Pages Posted: 24 Feb 2015 Last revised: 25 Oct 2018

See all articles by Santosh Anagol

Santosh Anagol

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

Vimal Balasubramaniam

Warwick Business School Finance Group

Tarun Ramadorai

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

Date Written: October 22, 2018

Abstract

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 increase applications to future IPOs and substantially increase portfolio trading volume in non-IPO stocks relative to lottery losers; the effects are symmetrically negative for experienced losses. Investors who have received multiple past IPO allocations show smaller responses, suggesting learning/selection moderates responses to noise shocks. The evidence is most consistent with investors learning about their own ability from experienced noise, drawing inferences about their skill from luck.

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 (October 22, 2018). 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

Warwick Business School Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

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

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