Working Paper: CEPR ID: DP13314
Authors: Tarun Ramadorai; Vimal Balasubramaniam; Santosh Anagol
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: learning; lotteries; causal inference; india; experience; investment
JEL Codes: G12; G14; D83; C9
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| random gains from IPO lotteries (H27) | likelihood of applying for future IPOs (G24) |
| random losses from IPO lotteries (H27) | likelihood of applying for future IPOs (G24) |
| random gains from IPO lotteries (H27) | trading volume in non-IPO stocks (G24) |
| random losses from IPO lotteries (H27) | trading volume in non-IPO stocks (G24) |
| experience of winning or losing (Z22) | future investment decisions (G11) |
| prior experience in IPOs (G24) | response to subsequent lotteries (H27) |