Lottery Preference and Anomalies

89 Pages Posted: 4 Jun 2020 Last revised: 12 Nov 2022

See all articles by Lei Jiang

Lei Jiang

Tsinghua University

Quan Wen

McDonough School of Business, Georgetown University

Guofu Zhou

Washington University in St. Louis - John M. Olin Business School

Yifeng Zhu

School of Finance, Central University of Finance and Economics

Date Written: November 8, 2022

Abstract

We construct a lottery factor based on 13 commonly used lottery proxies and show that this factor adds significant explanatory power to prominent factor models for anomalies, especially for those in the skewness and value groups. We find that anomaly returns are significantly stronger among stocks with high lottery features and are mainly driven by the short leg of lottery stocks instead of financial distress. We find further that lottery stocks are often associated with low short volume and high shorting fees, indicating that retail investors' preference to hold lottery stocks leads to a low lendable supply of such shares.

Keywords: Lottery preference factor, anomalies, partial least square (PLS)

JEL Classification: G11, G12

Suggested Citation

Jiang, Lei and Wen, Quan and Zhou, Guofu and Zhu, Yifeng, Lottery Preference and Anomalies (November 8, 2022). Available at SSRN: https://ssrn.com/abstract=3595419 or http://dx.doi.org/10.2139/ssrn.3595419

Lei Jiang

Tsinghua University ( email )

Beijing, 100084
China

Quan Wen

McDonough School of Business, Georgetown University ( email )

37th and O Street, NW
Washington D.C., DC 20057
United States

HOME PAGE: http://quan-wen.facultysite.georgetown.edu/home

Guofu Zhou (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

Washington University
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-6384 (Phone)
314-658-6359 (Fax)

HOME PAGE: http://apps.olin.wustl.edu/faculty/zhou/

Yifeng Zhu

School of Finance, Central University of Finance and Economics ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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