Gambling and Comovement

Alok Kumar, Jeremy K. Page, Oliver G. Spalt

Research output: Contribution to journalArticle

19 Scopus citations

Abstract

This study shows that correlated trading by gambling-motivated investors generates excess return comovement among stocks with lottery features. Lottery-like stocks comove strongly with one another, and this return comovement is strongest among lottery stocks located in regions where investors exhibit stronger gambling propensity. Looking directly at investor trades, we find that investors with a greater propensity to gamble trade lottery-like stocks more actively and that those trades are more strongly correlated. Finally, we demonstrate that time variation in general gambling enthusiasm and income shocks from fluctuating economic conditions induce a systematic component in investors' demand for lottery-like stocks.

Original languageEnglish (US)
Pages (from-to)85-111
Number of pages27
JournalJournal of Financial and Quantitative Analysis
Volume51
Issue number1
DOIs
StatePublished - Feb 1 2016

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

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