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Learning from noise: Evidence from India’s IPO lotteries

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  • Anagol, Santosh
  • Balasubramaniam, Vimal
  • Ramadorai, Tarun

Abstract

We study a natural experiment in which 1.5 million investors participate in allocation lotteries for Indian IPO stocks. Investors who win the lottery and obtain IPO stocks that rise in value increase portfolio trading volume in non-IPO stocks relative to lottery losers; the effects are negative for lottery winners obtaining IPO stocks that fall in value. A model in which agents learn from random experience about their ability to operate in the market environment best explains the results. Investors who have received multiple past IPO allocations show smaller responses, suggesting that learning/selection moderates these responses to noise shocks.

Suggested Citation

  • Anagol, Santosh & Balasubramaniam, Vimal & Ramadorai, Tarun, 2021. "Learning from noise: Evidence from India’s IPO lotteries," Journal of Financial Economics, Elsevier, vol. 140(3), pages 965-986.
    • Handle: RePEc:eee:jfinec:v:140:y:2021:i:3:p:965-986
    DOI: 10.1016/j.jfineco.2021.02.003
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    More about this item

    Keywords

    Investor behavior; Experience; Learning; Lotteries; Causal inference; India;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • C99 - Mathematical and Quantitative Methods - - Design of Experiments - - - Other

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