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Gambling and Comovement

Published online by Cambridge University Press:  12 April 2016

Alok Kumar,
Jeremy K. Page and
Oliver G. Spalt
Alok Kumar*
Affiliation:
akumar@miami.edu, University of Miami, School of Business Administration, Coral Gables, FL 33124
Jeremy K. Page
Affiliation:
jeremy.page@byu.edu, Brigham Young University, Marriott School of Management, Provo, UT 84602
Oliver G. Spalt
Affiliation:
o.g.spalt@uvt.nl, Tilburg University, School of Economics and Management, Tilburg 5000 LE, Netherlands.
*
*Corresponding author: akumar@miami.edu
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Abstract

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This study shows that correlated trading by gambling-motivated investors generates excess return comovement among stocks with lottery features. Lottery-like stocks comove strongly with one another, and this return comovement is strongest among lottery stocks located in regions where investors exhibit stronger gambling propensity. Looking directly at investor trades, we find that investors with a greater propensity to gamble trade lottery-like stocks more actively and that those trades are more strongly correlated. Finally, we demonstrate that time variation in general gambling enthusiasm and income shocks from fluctuating economic conditions induce a systematic component in investors’ demand for lottery-like stocks.

Information

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 1 , February 2016, pp. 85 - 111
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

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