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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.

Suggested Citation

  • Chiang, Yao-Min & Hirshleifer, David & Qian, Yiming & Sherman, Ann, 2009. "Learning to Fail? Evidence from Frequent IPO Investors," MPRA Paper 16854, University Library of Munich, Germany, revised Aug 2009.
    • Handle: RePEc:pra:mprapa:16854
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    References listed on IDEAS

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    More about this item

    Keywords

    IPO; auction; investor behavior; learning; reinforcement learning; institutional investor; individual investor; experience.;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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