Are lottery-like stocks overvalued in markets that have no lotteries?–Evidence from Saudi Arabia

Saad Alshammari and Shingo Goto

Finance Research Letters, 2022, vol. 46, issue PB

Abstract: Existing studies suggest that stocks with lottery-like characteristics tend to underperform, especially when they attract retail trades, and that the degree of underperformance is closely related to investors’ forgiving (vs. forbidding) attitude toward gambles/lotteries embedded in their religious norms. We examine how lottery-like stocks are valued in Saudi Arabia where stock trades are dominated by Muslim individuals who have never experienced gambles/lotteries. We find significant underperformance of lottery-like stocks in Saudi Arabia, especially among those with high stock turnover. We discuss a few channels through which investors in Saudi Arabia overpay for lottery-like characteristics despite their strong moral oppositions to gambles/lotteries.

Keywords: Asset pricing; Lottery-like; Stock markets; Portfolio performance (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:46:y:2022:i:pb:s1544612321004426

DOI: 10.1016/j.frl.2021.102460

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