Determinants and Forecasting of Jackpot Stock Returns

Abstract

This paper investigates the determinants of six different lottery-like stock return definitions that have been analyzed separately in prior literature. While we focus on information uncertainty as captured by accounting information, mispricing, institutional ownership and default risk as main determinants, our comprehensive framework investigates 47 independent variables as drivers of these particular stocks. Using state-of-the-art variable selection techniques, namely, stepwise regressions and the LASSO approach, we identify key drivers that differ based on the lottery stock definition used. Based on these insights, we present improved forecasting models for predicting jackpot returns.

Keywords: lottery-like stocks, jackpot stocks, jackpot stock predictability, forecasting

JEL Classification: G10, G12, G17, G33