Do Individual Investors Treat Trading as a Fun and Exciting Gambling Activity? Evidence from Repeated Natural Experiments

Gao, Xiaohui; Lin, Tse-Chun

doi:10.2139/ssrn.1622184

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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

See all articles by Xiaohui Gao

Xiaohui Gao

Fox School of Business, Temple University

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Date Written: September 19, 2014

Abstract

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

Gao, Xiaohui and Lin, Tse-Chun, Do Individual Investors Treat Trading as a Fun and Exciting Gambling Activity? Evidence from Repeated Natural Experiments (September 19, 2014). Forthcoming, Review of Financial Studies, Available at SSRN: https://ssrn.com/abstract=1622184 or http://dx.doi.org/10.2139/ssrn.1622184