Idiosyncratic skewness, gambling preference, and cross-section of stock returns: Evidence from China

Shouyu Yao, Chunfeng Wang, Xin Cui and Zhenming Fang

Pacific-Basin Finance Journal, 2019, vol. 53, issue C, 464-483

Abstract: By using evidence of the pricing of idiosyncratic skewness (IS), which can represent gambling preferences, our paper finds that the Chinese stock market has a significant gambling pricing anomaly of “higher IS and lower subsequent returns”. Moreover, this paper discusses the reasons for this strong gambling atmosphere in the Chinese market. We find that (1) individual investor attention and trading behavior are important drivers of gambling behavior and that (2) in addition to the irrational behavior of individual investors, arbitrage restrictions in the market may further exacerbate this gambling atmosphere. Therefore, our study suggests that to increase the market's efficiency, market regulators should strengthen the appropriate guidance and management for individual investors and consider relaxing additional arbitrage limits.

Keywords: Idiosyncratic skewness; Chinese stock market; Gambling behavior; Individual investors; Limits of arbitrage (search for similar items in EconPapers)
JEL-codes: G02 G12 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (47)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:53:y:2019:i:c:p:464-483

DOI: 10.1016/j.pacfin.2019.01.002

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