Do Investors Learn from Experience? Evidence from Frequent IPO Investors
AbstractWe examine how experience affects the decisions of individual investors and institutions in IPO auctions to bid in subsequent auctions, and their bidding returns. We track bidding histories for all 31,476 individual investors and 1,232 institutional investors across all 84 IPO auctions during the period from 1995 to 2000 in Taiwan. For individual bidders, (1) high returns in previous IPO auctions increase the likelihood of participating in future auctions; (2) bidders' returns decrease as they participate in more auctions; (3) auction selection ability deteriorates with experience; and (4) those with greater experience bid more aggressively. These findings are consistent with naïve reinforcement learning wherein individuals become unduly optimistic after receiving good returns. In sharp contrast, there is little sign that institutional investors exhibit such behavior. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: firstname.lastname@example.org., Oxford University Press.
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Bibliographic InfoArticle provided by Society for Financial Studies in its journal Review of Financial Studies.
Volume (Year): 24 (2011)
Issue (Month): 5 ()
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- Schnitzlein, Charles R. & Shao, Minjie, 2013. "Capacity constraints and the winner's curse in multi-unit common value auctions," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(2), pages 188-201.
- Hung, Weifeng & Chiao, Chaoshin & Liao, Tung Liang & Huang, Sheng-Tang, 2012. "R&D, risks and overreaction in a market with the absence of the book-to-market effect," International Review of Economics & Finance, Elsevier, vol. 22(1), pages 11-24.
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