Lottery jackpot winnings and retail trading in the neighborhood

Dien Giau Bui, Yu-Ju Chan, Chih-Yung Lin and Tse-Chun Lin

Journal of Banking & Finance, 2024, vol. 167, issue C

Abstract: We use lottery jackpot winnings in a neighborhood as an exogenous shock to investing in stocks. We find that retail investors whose brokerages are near the stores that sell winning tickets buy more stocks than their counterparts after the shock. These purchases lead to lower returns. We use a survey to identify the behavioral factors like regretfulness and probability weighting that are the main drivers of our findings. Moreover, these investors tend to buy more lottery-like stocks, but the shock does not affect their selling decisions. Finally, we perform several falsification tests and robustness checks and find consistent results.

Keywords: Lottery winnings; Regrefulness; Probability weighting; Trading turnover; Retail investors (search for similar items in EconPapers)
JEL-codes: G11 G12 G41 G51 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:167:y:2024:i:c:s0378426624001833

DOI: 10.1016/j.jbankfin.2024.107269

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