Attention, Social Interaction, and Investor Attraction to Lottery Stocks

Abstract

We find that among stocks dominated by retail investors, the lottery anomaly is amplified by high investor attention (proxied by high analyst coverage, salient earnings surprises, or recency of extreme positive returns) and intense social interactions (proxied by Facebook social connectedness or population density near firm headquarters). Such stocks’ lottery features attract greater Google search volume and retail net buying, followed by more negative earnings surprises and lower announcement-period returns. The findings provide insight into the roles of attention and social interaction in securities markets, and support the hypothesis that these forces contribute to investor attraction to lottery stocks.