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Lottery-related anomalies: the role of reference-dependent preferences

Li An, Huijun Wang, Jian Wang and Jianfeng Yu

No 259, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: Previous empirical studies find that lottery-like stocks significantly underperform their nonlottery-like counterparts. Using five different measures of the lottery features in the literature, we document that the anomalies associated with these measures are statedependent: the evidence supporting these anomalies is strong and robust among stocks where investors have lost money, while among stocks where investors have gained profits, the evidence is either weak or even reversed. Several potential explanations for such empirical findings are examined and we document support for the explanation based on reference-dependent preferences. Our results provide a united framework to understand the lottery-related anomalies in the literature.

JEL-codes: G12 G14 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2015-12-01
New Economics Papers: this item is included in nep-neu
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Citations: View citations in EconPapers (1)

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DOI: 10.24149/gwp259

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