Do You Feel Lucky? Lottery Jackpot Winnings and Retail Trading around Neighborhoods

Abstract

Using lottery jackpot winnings within neighborhoods as exogenous shocks, we examine whether feeling lucky affects retail stock purchases. We find that retail investors who trade through brokerage branches located close to stores that sell jackpot-winning tickets buy more stock shares than their counterparts. More importantly, these retail buys tend to lose money. We also find that these retail investors tend to purchase lottery-like stocks, linking the luck-driven trading motive to the traded targets under the common theme of gambling. We substantiate our results via several sets of falsification tests and robustness checks. Overall, feeling lucky induces retail investors to trade aggressively and leads to welfare losses.

Keywords: Lottery winnings, feeling lucky, trading turnover rate, investment performance, retail investors

JEL Classification: G11, G12, G41, G51