We exploit the randomized allocation of stocks in 54 Indian IPO lotteries to 1.5 million investors between 2007 and 2012 to provide new estimates of the causal effect of investment experiences on future investment behavior. We find that investors experiencing exogenous gains in IPO stocks (the treatment) are more likely to apply for future IPOs, increase trading in their portfolios, exhibit a stronger disposition effect, and tilt their portfolios towards the sector of the treatment IPO. Treatment effects vary with the characteristics of the treatment (size, variability, and salience of the gain), and are stronger for smaller and younger accounts. Treatment effects persist for larger and older accounts, suggesting that experiencing gains exerts a powerful force even on sophisticated players.
Abstract: I investigate the relationship between lifespan expectations and household investments into risky financial assets. To credibly establish this relationship, I use natural disasters and mass shootings experiences, in the county of the household, their social network and by geographic distance, and show that exposure to such experiences makes households more pessimistic. Using these experiences as an instrument, I document a robust negative relationship between lifespan pessimism and investments into risky assets. These results highlight the role of lifespan expectations in explaining household investments in risky financial markets.