Stock Loan Lotteries and Individual Investor Welfare

42 Pages Posted: 22 Apr 2020

See all articles by Jordan Moore

Jordan Moore

Rowan University - Accounting & Finance

Date Written: March 27, 2020

Abstract

I propose and model stock loan lotteries, a financial innovation that improves the welfare of individual investors. Stock loan lotteries are prize-linked payoffs using net rebates from securities lending. Stock loan lotteries motivate individual investors with prospect theory preferences to buy and hold risky assets with high expected returns. Stock loan lotteries provide the greatest welfare benefit to poor investors and have greater welfare benefits in a model with realistic market frictions. I propose a method for exchanges to bypass legal and regulatory hurdles by structuring stock loan lottery tickets as derivative securities.

Keywords: Behavioral Finance, Prospect Theory, Individual Investors, Financial Innovation, Savings

JEL Classification: G02, G11, G23

Suggested Citation

Moore, Jordan, Stock Loan Lotteries and Individual Investor Welfare (March 27, 2020). Available at SSRN: https://ssrn.com/abstract=3562536 or http://dx.doi.org/10.2139/ssrn.3562536

Jordan Moore (Contact Author)

Rowan University - Accounting & Finance ( email )

Glassboro, NJ 08028
United States

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