Lottery Preference and Anomalies

71 Pages Posted: 4 Jun 2020 Last revised: 9 Feb 2021

See all articles by Lei Jiang

Lei Jiang

Tsinghua University

Quan Wen

Georgetown University - Department of Finance

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: February 9, 2021

Abstract

We construct a lottery factor based on 13 commonly used lottery proxies. The lottery factor significantly improves explanatory power of prominent factor models for anomaly returns. We find that anomaly returns are significantly stronger among stocks with high lottery feature, and are mainly driven by the short leg of lottery stocks. We show that the effect of lottery feature on anomalies is not driven by financial distress, and instead is related to investors being reluctant to short sell stocks with high lottery features due to the high upside potential.

Keywords: Lottery preference factor, anomalies, asset pricing

JEL Classification: G11, G12

Suggested Citation

Jiang, Lei and Wen, Quan and Zhou, Guofu and Zhu, Yifeng, Lottery Preference and Anomalies (February 9, 2021). 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

Georgetown University - Department of Finance ( email )

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

HOME PAGE: http://faculty.georgetown.edu/qw50

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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