Retail Bubble Riders

We investigate the behavior of retail traders during repeated bubble episodes in the stocks using detailed data provided by the Bombay Stock Exchange. We show that, after controlling for attrition, retail traders are more likely to participate in bubble stocks if they have prior bubble experience. In addition, retail traders making extreme profits in the previous bubble episodes are less prone to engaging in future bubble riding. Moving from extreme profits to extreme losses in the previous bubble episodes monotonically increases the likelihood of future bubble participation. This pattern is consistent with risk-seeking following losses, implied by the prospect theory