Local Equity Bias and the Legalization of U.S. Sports Betting

Abstract

We investigate local stock trading behavior around the staggered legalization of sports betting across 34 U.S. states and D.C. After betting is legalized, local equity bias exhibits a relative increase in states with more lottery stocks, fewer sportsbooks, and where gamblers are most successful. Results remain robust when matched with states where betting is illegal and when excluding states with extreme stock market participation. These findings imply that sports betting complements risky local equity investment preferences. Consistent with this view, we show that after sports betting becomes legal, retail investors increase their trading activity of local lottery stocks.

Keywords: Local bias, sports betting, portfolio choice, lottery stocks JEL Classification: D91, G4, G11, Z23