Are Stocks in New Industries Like Lottery Tickets?

FRB of Atlanta Working Paper No. 2002-15

39 Pages Posted: 24 Sep 2002  

Gerald P. Dwyer

Clemson University; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Cora Barnhart

Palm Beach Atlantic University - Rinker School of Business

Date Written: August 2002

Abstract

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.

Keywords: stock prices, returns, lottery

JEL Classification: G10, G12

Suggested Citation

Dwyer, Gerald P. and Barnhart, Cora, Are Stocks in New Industries Like Lottery Tickets? (August 2002). FRB of Atlanta Working Paper No. 2002-15. Available at SSRN: https://ssrn.com/abstract=325820 or http://dx.doi.org/10.2139/ssrn.325820

Gerald P. Dwyer (Contact Author)

Clemson University ( email )

Department of Economics
Clemson University
Clemson, SC 29634
United States

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Cora Barnhart

Palm Beach Atlantic University - Rinker School of Business ( email )

901 S. Flagler Drive
West Palm Beach, FL 33401
United States

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