Dissecting the Lottery-Like Anomaly: Evidence from China

49 Pages Posted: 1 May 2023 Last revised: 28 Sep 2023

See all articles by Ming Gu

Ming Gu

Xiamen University - School of Economics

Yi Hu

Renmin University of China - Hanqing Institute

Zhitao Xiong

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Date Written: April 30, 2023

Abstract

This paper dissects the lottery-like anomaly in Chinese A-share stocks by decomposing total stock returns into overnight and intraday returns. Our findings indicate that the negative overnight returns are concentrated among lottery-like stocks, and the lottery-like anomaly is mainly driven by the overnight returns component. Considering the unique Chinese institutional features, we further show that the overnight returns induced lottery-like anomaly is more pronounced in stocks with high retail investors’ gambling preference and high limits of arbitrage. Overall, our results suggest that investors optimism and trading constraints have a substantial impact on market efficiency in China.

Keywords: Lottery-like anomaly, Overnight returns, Lottery preference, Limits of arbitrage

JEL Classification: G11, G12, G14

Suggested Citation

Gu, Ming and Hu, Yi and Xiong, Zhitao, Dissecting the Lottery-Like Anomaly: Evidence from China (April 30, 2023). Available at SSRN: https://ssrn.com/abstract=4433510 or http://dx.doi.org/10.2139/ssrn.4433510

Ming Gu (Contact Author)

Xiamen University - School of Economics ( email )

Xiamen, Fujian
China

Yi Hu

Renmin University of China - Hanqing Institute ( email )

59 Zhongguancun Street
Beijing, 100872
China

Zhitao Xiong

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

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