Investors' Overconfidence in Primary Markets

Abstract

We test whether investors in primary markets also exhibit overconfidence. Using data from 77 Taiwanese discriminatory IPO auctions, we test the overconfidence hypothesis for three types of investors (i.e. bidders in auctions): male individuals, female individuals, and institutional investors. We find that the male, the female, and institutional investors in our sample do indeed exhibit overconfidence in bidding for IPO shares; the male have a higher degree of overconfidence than do the female and the institutional investors. We further test whether the overconfidence found stems from self-attribution bias, which in our study might suggest that investors who gain from previous IPOs will bid subsequent IPOs with a more aggressive price, while investors who lose in previous IPOs do not recede in their bidding price for subsequent IPOs. Our results document such evidence for individual investors.