Time-Varying Demand for Lottery: Speculation Ahead of Earnings Announcements

81 Pages Posted: 8 Dec 2016 Last revised: 29 Oct 2020

See all articles by Bibo Liu

Bibo Liu

Tsinghua University - PBC School of Finance

Huijun Wang

Auburn University; University of Melbourne

Jianfeng Yu

Tsinghua University - PBC School of Finance

Shen Zhao

Chinese university of Hong Kong (Shenzhen)

Date Written: November 9, 2019

Abstract

Investor preferences for holding speculative assets are likely to be more pronounced ahead of firms' earnings announcements, probably because of lower inventory costs and immediate payoffs or because of enhanced investor attention. We show that the demand for lottery-like stocks is stronger ahead of earnings announcements, leading to a price run-up for these stocks. In sharp contrast to the standard underperformance of lottery-like stocks, lottery-like stocks outperform non-lottery stocks by about 52 basis points in the 5-day window ahead of earnings announcements. However, this return spread is reversed by 80 basis points in the 5-day window after the announcements. Moreover, this inverted-V-shaped pattern on cumulative return spreads is more pronounced among firms with a greater retail order imbalance, among firms with low institutional ownership, and in regions with a stronger gambling propensity, and it is also robust after controlling for past 12-month returns and various proxies for investor attention.

Keywords: speculation, lottery, earnings announcements, skewness

JEL Classification: G02, G12, G14

Suggested Citation

Liu, Bibo and Wang, Huijun and Yu, Jianfeng and Zhao, Shen, Time-Varying Demand for Lottery: Speculation Ahead of Earnings Announcements (November 9, 2019). PBCSF-NIFR Research Paper, Available at SSRN: https://ssrn.com/abstract=2881340 or http://dx.doi.org/10.2139/ssrn.2881340

Bibo Liu

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Huijun Wang (Contact Author)

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States

University of Melbourne

198 Berkeley Street
Carlton, Victoria 3053
Australia

Jianfeng Yu

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Shen Zhao

Chinese university of Hong Kong (Shenzhen) ( email )

2001 Longxiang Road,
Longgang District,
Shenzhen
China

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