Demand for Lotteries: The Choice between Stocks and Options

54 Pages Posted: 11 Aug 2017 Last revised: 10 Dec 2020

See all articles by Ilias Filippou

Ilias Filippou

Washington University in St. Louis - John M. Olin Business School

Pedro Angel Garcia-Ares

Instituto Tecnológico Autónomo de México (ITAM)

Fernando Zapatero

Questrom School of Business, Boston University

Date Written: June 28, 2018

Abstract

The literature has demonstrated that stocks with skewness-like characteristics – lotteryness– are the target of a type of investors willing to pay a premium to achieve exposure to skewness. We show that only stocks without options written on them have the potential to attract skewness-seeking investors; furthermore, out-of-the-money options are the dominant security with lottery characteristics for skewness investors. Finally, we find evidence that suggests that skewness-seeking in out-of-the money options ist driven mainly by retail investors, while average negative returns in at-the- money options seem to be linked to the covered-call strategies of mutual funds.

Keywords: Lottery-payoffs, Option Trading, Lottery Stocks

JEL Classification: G11, G12, G14, G32

Suggested Citation

Filippou, Ilias and Garcia-Ares, Pedro Angel and Zapatero, Fernando, Demand for Lotteries: The Choice between Stocks and Options (June 28, 2018). Available at SSRN: https://ssrn.com/abstract=3016462 or http://dx.doi.org/10.2139/ssrn.3016462

Ilias Filippou

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Pedro Angel Garcia-Ares

Instituto Tecnológico Autónomo de México (ITAM)

Av. Camino a Sta. Teresa 930
Col. Héroes de Padierna
Mexico City, D.F. 01000, Federal District 01080
Mexico

Fernando Zapatero (Contact Author)

Questrom School of Business, Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-353-3631 (Phone)

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