Do Investors Learn from Experience? Evidence from Frequent IPO Investors

Yao-Min Chiang, David Hirshleifer, Yiming Qian, and Ann E. Sherman,

Review of Financial Studies, May 2011


We examine how experience affects the decisions of individual investors and institutions in IPO auctions to bid in subsequent auctions, and their bidding returns. We track bidding histories for all 31,476 individual investors and 1,232 institutional investors across all 84 IPO auctions during 1995-2000 in Taiwan. For individual bidders: (1) high returns in previous IPO auctions increase the likelihood of participating in future auctions; (2) bidders’ returns decrease as they participate in more auctions; (3) auction selection ability deteriorates with experience; and (4) bidders with greater experience bid more aggressively. 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.

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