Download this Paper Open PDF in Browser

Endowment Effects in the Field: Evidence from India's IPO Lotteries

131 Pages Posted: 13 Dec 2015 Last revised: 2 Nov 2017

Santosh Anagol

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

Vimal Balasubramaniam

Warwick Business School

Tarun Ramadorai

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 17, 2017

Abstract

We study a unique field experiment in India in which 1.5 million stock investors face lotteries for the random allocation of shares. We find that the winners of these randomly assigned initial public offering (IPO) lottery shares are significantly more likely to hold them than lottery losers 1, 6, and even 24 months after the random allocation. This finding strongly evokes laboratory findings of an “endowment effect” for risky gambles, and persists in samples of highly active investors, suggesting along with additional evidence that this behavior is not driven by inertia alone. The effect decreases as experience in the IPO market increases but remains even for very experienced investors. Leading theories of the endowment effect based on reference-dependent preferences are unable to fully explain these and other findings in the data.

Keywords: endowment effect, exchange asymmetry, reference dependence, loss aversion, salience, inattention, lotteries, causal inference, India

JEL Classification: G11, G14, C93, D12

Suggested Citation

Anagol, Santosh and Balasubramaniam, Vimal and Ramadorai, Tarun, Endowment Effects in the Field: Evidence from India's IPO Lotteries (August 17, 2017). Available at SSRN: https://ssrn.com/abstract=2702555 or http://dx.doi.org/10.2139/ssrn.2702555

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 ( 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 )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Paper statistics

Downloads
436
Rank
55,147
Abstract Views
2,066