Do Individual Investors Treat Trading as a Fun and Exciting Gambling Activity? Evidence from Repeated Natural Experiments
Forthcoming, Review of Financial Studies
59 Pages Posted: 9 Jun 2010 Last revised: 23 Sep 2014
Date Written: September 19, 2014
We hypothesize that individual investors treat trading as a fun and exciting gambling activity, which implies substitution between this activity and alternative gambling opportunities. To examine this hypothesis, we study the lottery jackpots and the trading of individual investors in Taiwan. When the jackpots exceed 500 million Taiwan dollars, the trading volume decreases between 5.2% and 9.1% among stocks preferred by individual investors and between 6.8% and 8.6% among lottery-like stocks. The decline in individual buy volume is statistically indistinct from the decline in sell volume. Large jackpots are associated with less trading in options with high sensitivity to volatility.
Keywords: Natural experiments, lottery, stock trading, substitution effect, fun and excitement
JEL Classification: G10, G12, G13, G51
Suggested Citation: Suggested Citation