Do Investors Overweight Personal Experience? Evidence from IPO Subscriptions

31 Pages Posted: 1 Mar 2007 Last revised: 12 Dec 2007

See all articles by Markku Kaustia

Markku Kaustia

Aalto University

Samuli Knüpfer

Aalto University School of Business; BI Norwegian Business School; Research Institute of Industrial Economics (IFN)

Multiple version iconThere are 2 versions of this paper

Date Written: October 30, 2007


We find a strong positive link between past IPO returns and future subscriptions at the investor level in Finland. Our setting allows tracing this effect to the returns personally experienced by investors. The effect is not explained by patterns related to the IPO cycle, or wealth effects. This behavior is consistent with reinforcement learning, in which personally experienced outcomes are overweighted compared to rational Bayesian learning. The results provide a microfoundation for the argument that investor sentiment drives IPO demand. The paper also contributes to understanding how popular investment styles develop, and has implications for the marketing of financial products.

Keywords: Investor behavior, learning, reinforcement, sentiment, initial public offering

JEL Classification: G11, G24, D83

Suggested Citation

Kaustia, Markku and Knüpfer, Samuli, Do Investors Overweight Personal Experience? Evidence from IPO Subscriptions (October 30, 2007). AFA 2008 New Orleans Meetings Paper, EFA 2007 Ljubljana Meetings Paper, Available at SSRN: or

Markku Kaustia

Aalto University ( email )

P.O. Box 21210
Helsinki, 00101

Samuli Knüpfer (Contact Author)

Aalto University School of Business

P.O. Box 21210
AALTO, 00076


BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442

Research Institute of Industrial Economics (IFN)

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15

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