When do investors gamble in the stock market?

Pu Gong, Zhuzhu Wen, Xiong Xiong and Cynthia M. Gong

International Review of Financial Analysis, 2021, vol. 74, issue C

Abstract: Recent studies have uncovered gambling-motivated trading activities in financial markets in which investors seek lottery-type payoffs by using financial assets. Building on prospect theory, this study provides an important complement to prior research and investigates what period that investors make gambling-motivated trading in the stock market. Examining data from the Chinese stock market, investors are revealed to have asymmetric gambling preferences in gain and loss domains. Investors' gambling motivations are more easily triggered when the market is experiencing a loss. In such periods of time, investors may preferentially opt for lottery-type stocks that offer them a small chance to earn an extreme return at the risk of a likely small loss, simply due to their ‘aversion to a sure loss’.

Keywords: Gambling; Lottery-type stocks; Prospect theory; Risk preference (search for similar items in EconPapers)
JEL-codes: G11 G41 L83 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:74:y:2021:i:c:s1057521921000557

DOI: 10.1016/j.irfa.2021.101712

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