The Effects of Experience on
Investor Behavior:
Evidence from India's IPO Lotteries
Santosh Anagol, Vimal Balasubramaniam, Tarun Ramadorai
Discussion by:
Sergey Gelman, ICEF, Higher School of Economics,
Moscow
Summary (I)
Summary (II)
• Classical finance theory assumes that
preferences are constant and beliefs are slow
changing
• New empirical evidence: investor experience
seems to change risk attitude
– problem: experience is endogenous
• This paper shows
– Experience changes investor preferences with
regard to risk (and the choice of assets)
– Quasi-experimental design with experience
assignment
Summary (III)
• Data & design
– 1.5 mln investor accounts; oversubscribed IPOs in India
– Share allotment is performed through a lottery
• Results
– Treated investors are more likely to
•
•
•
•
Participate in further IPOs
Trade other stocks
Get more diversified
Realize gains
– Treatment effect is moderated by “age”, wealth, bid size
Comments (I)
• Very convincing results
• Impressive data analysis
• Thorough robustness checks. Main results
hold for
– “Age” groups
– Wealth groups
– Application size groups
• Interesting read!
Comments (II)
• Needs better explanation:
• How does positive IPO experience change risk
aversion?
– Decreases RA: IPO participation ↑, sector weight
↑, trading ↑
– Increases RA: realization of paper gains ↑,
diversification ↑
Comments (III)
• Closer look at: experiment heterogeneity and
self-selection
• “Gamblers” vs. “committed investors”
Comments (III)
• Self – selection: average propensity is treated
with fixed effects
• But what about treatment effect heterogeneity?
Comments (III)
Comments (III)
• experiment heterogeneity and self-selection:
• Cluster standard errors by experiment or at least
share category (may be even use SUR to
calculate s.e.)
Comments (III)
• Explain heterogeneity:
– Pure gambling
– Or forced gambling (budget constraints)?
• Control for portfolio size, “age” (also include
interaction terms)
Comments (IV)
• The question of generalisability – investors
taking part in IPO‘s are possibly riskier than
trading only on secondary market
• Are the results driven by crisis years? If you
have participated in crisis, you would have
possibly ….? Year x treatment?