Lottery Stocks in the UK: Evidence, Characteristics and Cause

45 Pages Posted: 28 Apr 2021

See all articles by Maher Khasawneh

Maher Khasawneh

University of Stirling

David G. McMillan

University of Stirling

Dimos S Kambouroudis

University of Stirling - Department of Accounting and Finance

Date Written: April 27, 2021

Abstract

Research across international markets identifies lottery-like stocks that contradict the standard positive risk-return trade-off paradigm. This paper, consistent with those results, reports under-performance for lottery-like stocks in the UK market. Moreover, while the under-performance appears stronger in crisis periods, it persists across all periods even when controlling for other return predictors such as size, momentum and downsize risk. However, the cause of the under-performance remains a source of debate. Our results show that a left-tail measure subsumes the UK lottery effect. This suggests under-reaction and continuation behaviour to bad news and is combined with limits to arbitrage. In addition, our findings indicate that poor lottery stock performance is partially explained by the anchoring effect and is more prevalent with greater optimism and sentiment. This contrasts with US results where reversion behaviour is reported for lottery-like stocks and supports the need for market specific research.

Keywords: Stock Returns, Lottery Effect, Idiosyncratic Volatility, Max-Effect

JEL Classification: C20, C58, G12

Suggested Citation

Khasawneh, Maher and McMillan, David G. and Kambouroudis, Dimos S, Lottery Stocks in the UK: Evidence, Characteristics and Cause (April 27, 2021). Available at SSRN: https://ssrn.com/abstract=3835209 or http://dx.doi.org/10.2139/ssrn.3835209

Maher Khasawneh

University of Stirling ( email )

Stirling, Scotland FK9 4LA
United Kingdom

David G. McMillan (Contact Author)

University of Stirling ( email )

Stirling, Scotland FK9 4LA
United Kingdom

Dimos S Kambouroudis

University of Stirling - Department of Accounting and Finance ( email )

Stirling, Scotland FK9 4LA
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
46
Abstract Views
245
PlumX Metrics