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Endowment Effects in the Field: Evidence from India’s IPO Lotteries

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  • Santosh Anagol
  • Vimal Balasubramaniam
  • Tarun Ramadorai

Abstract

We study a unique field experiment in India in which 1.5 million stock investors face lotteries for the random allocation of shares. We find that the winners of these randomly assigned initial public offering (IPO) lottery shares are significantly more likely to hold them than lottery losers 1, 6, and even 24 months after the random allocation. This finding strongly evokes laboratory findings of an “endowment effect” for risky gambles, and persists in samples of highly active investors, suggesting along with additional evidence that this behaviour is not driven by inertia alone. The effect decreases as experience in the IPO market increases, but remains even for very experienced investors. Leading theories of the endowment effect based on reference-dependent preferences are unable to fully explain these and other findings in the data.

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  • Santosh Anagol & Vimal Balasubramaniam & Tarun Ramadorai, 2018. "Endowment Effects in the Field: Evidence from India’s IPO Lotteries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(4), pages 1971-2004.
    • Handle: RePEc:oup:restud:v:85:y:2018:i:4:p:1971-2004.
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    File URL: http://hdl.handle.net/10.1093/restud/rdy014
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    3. Miroslav Ferenèak & Dušan Dobromirov & Mladen Radišiæ & Aleksandar Takaèi, 2018. "Aversion to a sure loss: turning investors into gamblers," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 36(2), pages 537-557.
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    More about this item

    Keywords

    Endowment effect; Exchange asymmetry; Reference dependence; Loss aversion; Salience; Inattention; Lotteries; Causal inference; India;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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