Birds of a feather flock together: A study of new shareholders and Swedish IPOs

This paper analyzes new individual investors (rookies) and the importance of initial public offerings (IPOs) in attracting rookies to the stock market, which is an issue previous research has not focused on. The paper uses stock ownership records for publicly listed Swedish firms together with data on IPOs for the period 2004-2010. We find the proportion of IPO investors among rookies to be larger than for non-rookies and that rookies are more likely to invest in IPOs than non-rookies. Thus, IPOs appear to attract rookies to a larger extent than non-rookies. Moreover, rookies investing in IPOs have a higher income and hold larger stock portfolios, but they receive lower returns compared with other rookies. In addition, the results show that even for rookies, sophisticated investors receive higher returns than less sophisticated investors.