Attention, Social Interaction, and Investor Attraction to Lottery Stocks

67 Pages Posted: 15 Mar 2019 Last revised: 15 Jul 2019

See all articles by Turan G. Bali

Turan G. Bali

Georgetown University - Robert Emmett McDonough School of Business

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Yi Tang

Fordham University - Gabelli School of Business

Date Written: February 27, 2019

Abstract

We test the hypothesis that retail investors' attraction to lottery stocks induces overvaluation, and is amplified by high attention and social interactions. The lottery premium (negative abnormal returns) is stronger for high-retail-ownership stocks—especially those that also have high analyst coverage, high latest absolute earnings surprises, or extreme recent positive returns. The premium is also larger for high-retail-ownership stocks headquartered in counties with high social interactions, proxied by headquarter population density or Facebook social connectivity. Google search activities in response to large extreme returns are also consistent with the role of attention in attracting investors to lottery stocks.

Keywords: Preference for lottery-like stocks, investor attention, social interactions, social network, MAX, skewness, retail investors

JEL Classification: G10, G11, G12, G14, C13, E20, E30

Suggested Citation

Bali, Turan G. and Hirshleifer, David A. and Peng, Lin and Tang, Yi, Attention, Social Interaction, and Investor Attraction to Lottery Stocks (February 27, 2019). 9th Miami Behavioral Finance Conference 2018; Baruch College Zicklin School of Business Research Paper No. 2019-03-01; Georgetown McDonough School of Business Research Paper No. 3343769. Available at SSRN: https://ssrn.com/abstract=3343769 or http://dx.doi.org/10.2139/ssrn.3343769

Turan G. Bali (Contact Author)

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)

HOME PAGE: https://sites.google.com/a/georgetown.edu/turan-bali

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

Yi Tang

Fordham University - Gabelli School of Business ( email )

113 West 60th Street
New York, NY 10023
United States

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