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

143 Pages Posted: 20 Jun 2016

See all articles by Santosh Anagol

Santosh Anagol

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

Vimal Balasubramaniam

University of Oxford

Tarun Ramadorai

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

Multiple version iconThere are 2 versions of this paper

Date Written: June 2016

Abstract

Winners of randomly assigned initial public offering (IPO) lottery shares are significantly more likely to hold these shares than lottery losers 1, 6, and even 24 months after the random allocation. This effect persists in samples of wealthy and highly active investors, suggesting along with additional evidence that this type of "endowment effect" is not solely driven by portfolio inertia or wealth effects. The effect decreases as experience in the IPO market increases, but persists even for the most experienced investors. These results suggest that agents'; preferences and/or beliefs about an asset are not independent of ownership, providing field evidence derived from the behavior of 1.5 million Indian stock investors which is in line with the large laboratory literature documenting endowment effects. We evaluate the extent to which prominent models of endowment effects and/or investor behavior can explain our results. A combination of inattention and non-standard preferences (realization utility) or non-standard beliefs (salience based probability distortions) appears most consistent with our findings.

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

JEL Classification: C93, D12, G11, G14

Suggested Citation

Anagol, Santosh and Balasubramaniam, Vimal and Ramadorai, Tarun, Endowment Effects in the Field: Evidence from India's IPO Lotteries (June 2016). CEPR Discussion Paper No. DP11328. Available at SSRN: https://ssrn.com/abstract=2798117

Santosh Anagol (Contact Author)

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 ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Tarun Ramadorai

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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