The Effects of Experience on Investor Behavior: Evidence from India's IPO Lotteries Santosh Anagol, Vimal Balasubramaniam, Tarun Ramadorai Discussion by: Sergey Gelman, ICEF, Higher School of Economics, Moscow

Summary (I)

Summary (II) Classical finance theory assumes that preferences are constant and beliefs are slow changing New empirical evidence: investor experience seems to change risk attitude – problem: experience is endogenous This paper shows – Experience changes investor preferences with regard to risk (and the choice of assets) – Quasi-experimental design with experience assignment

Summary (III) Data & design – 1.5 mln investor accounts; oversubscribed IPOs in India – Share allotment is performed through a lottery Results – Treated investors are more likely to Participate in further IPOs Trade other stocks Get more diversified Realize gains – Treatment effect is moderated by “age”, wealth, bid size

Comments (I) Very convincing results Impressive data analysis Thorough robustness checks. Main results hold for – “Age” groups – Wealth groups – Application size groups Interesting read!

Comments (II) Needs better explanation: How does positive IPO experience change risk aversion? – Decreases RA: IPO participation ↑, sector weight ↑, trading ↑ – Increases RA: realization of paper gains ↑, diversification ↑

Comments (III) Closer look at: experiment heterogeneity and self-selection “Gamblers” vs. “committed investors”

Comments (III) Self – selection: average propensity is treated with fixed effects But what about treatment effect heterogeneity?

Comments (III)

experiment heterogeneity and self-selection: Cluster standard errors by experiment or at least share category (may be even use SUR to calculate s.e.)

Comments (III) Explain heterogeneity: – Pure gambling – Or forced gambling (budget constraints)? Control for portfolio size, “age” (also include interaction terms)

Comments (IV) The question of generalisability – investors taking part in IPO‘s are possibly riskier than trading only on secondary market Are the results driven by crisis years? If you have participated in crisis, you would have possibly ….? Year x treatment?