Social Interactions and Lottery Stock Mania

Turan G. Bali, David Hirshleifer, Lin Peng, Yi Tang and Qiguang Wang

No 29543, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We find that social interactions are associated with stocks becoming more lottery-like and with greater investor overoptimism about the lottery characteristic. Heightened social media activity about a stock positively predicts the probability of an extreme daily price run-up, a lottery event. Lottery event stocks subject to more extensive social media discussions subsequently experience greater retail buying pressure—particularly from Robinhood users—followed by lower returns. Moreover, lottery stocks of firms headquartered in more socially connected counties experience lower subsequent returns. Our findings are consistent with theories in which social interactions stimulate investor excitement and asset price bubbles.

JEL-codes: D84 D91 G12 G14 G4 G41 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-fmk
Note: AP
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Citations: View citations in EconPapers (16)

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