Lottery-Related Anomalies: The Role of Reference-Dependent Preferences

52 Pages Posted: 28 Jan 2016

See all articles by Li An

Li An

Tsinghua University - PBC School of Finance

Huijun Wang

Auburn University; University of Melbourne

Jian Wang

The Chinese University of Hong Kong, Shenzhen; Shenzhen Finance Institute

Jianfeng Yu

Tsinghua University - PBC School of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: 2015-12-01

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 Classification: G02, G12, G14

Suggested Citation

An, Li and Wang, Huijun and Wang, Jian and Yu, Jianfeng, Lottery-Related Anomalies: The Role of Reference-Dependent Preferences (2015-12-01). Globalization and Monetary Policy Institute Working Paper No. 259, Available at SSRN: https://ssrn.com/abstract=2723119 or http://dx.doi.org/10.24149/gwp259

Li An (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Huijun Wang

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States

University of Melbourne

198 Berkeley Street
Carlton, Victoria 3053
Australia

Jian Wang

The Chinese University of Hong Kong, Shenzhen ( email )

HOME PAGE: http://jianwang.weebly.com

Shenzhen Finance Institute ( email )

Jianfeng Yu

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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