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

Author(s): Santosh Anagol, Vimal Balasubramaniam and Tarun Ramadorai

Publication Date: June 2016

Keyword(s): causal inference, endowment effect, exchange asymmetry, inattention, India, loss aversion, lotteries, reference dependence and salience

Programme Area(s): Development Economics and Financial Economics

Abstract: Winners of randomly assigned initial public offering (IPO) lottery shares are significantly more likely to hold these shares than lottery losers 1, 6, and even 24 months after the random allocation. This effect persists in samples of wealthy and highly active investors, suggesting along with additional evidence that this type of "endowment effect" is not solely driven by portfolio inertia or wealth effects. The effect decreases as experience in the IPO market increases, but persists even for the most experienced investors. These results suggest that agents'; preferences and/or beliefs about an asset are not independent of ownership, providing field evidence derived from the behavior of 1.5 million Indian stock investors which is in line with the large laboratory literature documenting endowment effects. We evaluate the extent to which prominent models of endowment effects and/or investor behavior can explain our results. A combination of inattention and non-standard preferences (realization utility) or non-standard beliefs (salience based probability distortions) appears most consistent with our findings.

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Bibliographic Reference

Anagol, S, Balasubramaniam, V and Ramadorai, T. 2016. 'Endowment Effects in the Field: Evidence from India's IPO Lotteries'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=11328