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Discussion Paper Details

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Title: Learning from Noise: Evidence from India's IPO Lotteries

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

Publication Date: November 2018

Keyword(s): causal inference, experience, India, investment, learning and lotteries

Programme Area(s): Financial Economics

Abstract: We study a natural experiment in which 1.5 million investors participate in allocation lotteries for Indian IPO stocks. Randomized IPO gains cause winning investors to increase applications to future IPOs and substantially increase portfolio trading volume in non-IPO stocks relative to lottery losers; the effects are symmetrically negative for experienced losses. Investors who have received multiple past IPO allocations show smaller responses, suggesting learning/selection moderates responses to noise shocks. The evidence is most consistent with investors learning about their own ability from experienced noise, drawing inferences about their skill from luck.

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Bibliographic Reference

Anagol, S, Balasubramaniam, V and Ramadorai, T. 2018. 'Learning from Noise: Evidence from India's IPO Lotteries'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13314