Getting Better: Learning to Invest in an Emerging Stock Market

This paper reports evidence that individual investors in Indian equities hold better performing portfolios as they become more experienced in the equity market. Experienced investors tilt their portfolios profi…tably towards value stocks and stocks with low turnover, but these tilts do not fully explain their good performance. Experienced investors also tend to have lower turnover and disposition bias. These behaviors, as well as underdiversifi…cation, diminish when investors experience poor returns resulting from them, consistent with models of reinforcement learning. Indian stocks held by experienced, well diversifi…ed, low-turnover and low-disposition-bias investors deliver higher average returns even controlling for a standard set of stock-level characteristics.