Lottery Stocks and Stop-loss Rules

35 Pages Posted: 4 May 2021

See all articles by Bochuan Dai

Bochuan Dai

Massey University - School of Economics and Finance

Ben R. Marshall

Massey University - School of Economics and Finance

Nhut H. Nguyen

Auckland University of Technology

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Date Written: April 27, 2021

Abstract

We show that stop-loss rules increase the returns to investment in stocks with lottery features. These stocks, which are popular with individual investors, typically have sporadic big gains and frequent small losses. However, stop-loss rules can reduce losses and allow investors to receive the gains from large price increases. We also highlight the sell signals of popular technical rules are like stop-loss rules and are effective at increasing lottery stock risk-adjusted returns. These rules could help investors avoid instances of major historical drawdowns, are particularly beneficial in declining markets, and are robust to the inclusion of transaction costs.

Keywords: Lottery Stocks, Stop-loss Rules, Trading Strategies, Individual Investors

JEL Classification: G11, G12

Suggested Citation

Dai, Bochuan and Marshall, Ben R. and Nguyen, Nhut H. and Visaltanachoti, Nuttawat, Lottery Stocks and Stop-loss Rules (April 27, 2021). Available at SSRN: https://ssrn.com/abstract=3836739 or http://dx.doi.org/10.2139/ssrn.3836739

Bochuan Dai (Contact Author)

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
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New Zealand

Ben R. Marshall

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand
64 6 350 5799 (Phone)
64 6 350 5651 (Fax)

Nhut H. Nguyen

Auckland University of Technology ( email )

55 Wellesley St East
Auckland, Auckland 1010
New Zealand
+64 9 921 9999 (Phone)

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
Private Bag 102904, NSMC
Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

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