Are Stocks in New Industries Like Lottery Tickets?
Gerald P. Dwyer
Clemson University; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)
Palm Beach Atlantic University - Rinker School of Business
FRB of Atlanta Working Paper No. 2002-15
We examine the distribution of returns in new industries to determine whether stocks in new industries are similar to lottery tickets. We focus on one characteristic of lottery tickets: Negative expected returns. We examine data from the United States on sellers of own-brand personal computers, airlines and airplane manufacturers, automobile manufacturers, railroads, and telegraphs. A relatively small number of companies generate outstanding returns in some industries. We find no evidence of low expected returns. On the contrary, firms in new industries typically have high volatility of individual stocks' returns and high expected returns relative to indexes for the same periods. None of our evidence suggests that investors reasonably might expect to pay to play when investing in new industries.
Number of Pages in PDF File: 39
Keywords: stock prices, returns, lottery
JEL Classification: G10, G12
Date posted: September 24, 2002