Gambling Preference and the New Year Effect of Assets with Lottery Features

Review of Finance, 2012, 16(3), 685-731.

63 Pages Posted: 4 Feb 2008 Last revised: 26 Nov 2012

See all articles by James Doran

James Doran

University of New South Wales

Danling Jiang

College of Business, Stony Brook University

David R. Peterson

Florida State University - Department of Finance

Date Written: February 8, 2011

Abstract

This paper examines whether a New Year's gambling preference of individual investors impacts prices and returns of assets with lottery features. We find that, in January, call options have higher demand than put options, especially among small investors. In addition, relative to at-the-money calls, out-of-the-money calls are the most expensive and actively traded. In US equity markets, lottery-type stocks (low price, high idiosyncratic volatility, and high idiosyncratic skewness) outperform their counterparts in January, but tend to underperform in other months. Retail sentiment is more bullish in lottery-type stocks in January than in other months. Furthermore, lottery-type Chinese stocks outperform in the Chinese New Year month, but not in January. We suggest that this New Year effect provides new insights into the broad phenomena related to the January effect.

Keywords: January effect, Gambling, Preference for skewness, Out-of-the-money options, China

JEL Classification: G12, G14

Suggested Citation

Doran, James and Jiang, Danling and Peterson, David R., Gambling Preference and the New Year Effect of Assets with Lottery Features (February 8, 2011). Review of Finance, 2012, 16(3), 685-731. . Available at SSRN: https://ssrn.com/abstract=1089562

James Doran

University of New South Wales ( email )

College Rd
Sydney, NSW 2052
Australia

Danling Jiang (Contact Author)

College of Business, Stony Brook University ( email )

306 Harriman Hall
Stony Brook, NY 11794
United States

HOME PAGE: http://sites.google.com/site/danlingjiang

David R. Peterson

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States
850-644-8200 (Phone)
850-644-4225 (Fax)

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