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Learning to Fail? Evidence from Frequent IPO Investors

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  • Chiang, Yao-Min
  • Hirshleifer, David
  • Qian, Yiming
  • Sherman, Ann

Abstract

We examine the effects of bidding experience on two groups of investors – individuals and institutions – in terms of their decisions to bid again and their bidding returns. Bidding histories are tracked for all 31,376 individual investors and 1,232 institutional investors across all 84 IPO auctions during 1995-2000 in Taiwan. For individual bidders: (1) high initial returns in IPO auctions increases the likelihood of participating in future auctions; (2) bidder returns steadily decrease as they participate in more auctions; (3) auction selection ability does not improve (and may get worse) with experience; and (4) greater experience is associated with more aggressive bid prices. 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.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16854.

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Date of creation: Aug 2009
Date of revision: Aug 2009
Handle: RePEc:pra:mprapa:16854

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Keywords: IPO; auction; investor behavior; learning; reinforcement learning; institutional investor; individual investor; experience.;

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