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Who Gambles in the Stock Market?

Alok Kumar

University of Miami - School of Business Administration

September 4, 2008

AFA 2006 Boston Meetings Paper
Journal of Finance, Forthcoming
EFA 2005 Moscow Meetings Paper

This study shows that people's propensity to gamble and their investment decisions are correlated. At an aggregate level, individual investors prefer stocks with lottery features, and like lottery demand, the demand for lottery-type stocks increases during economic downturns. In the cross-section, socioeconomic factors that induce greater expenditure in lotteries are associated with greater investment in lottery-type stocks. Further, these investment levels are higher in regions with favorable lottery environments. Because lottery-type stocks under-perform, gambling-related under-performance is greater among low-income investors who excessively overweight lottery-type stocks. Collectively, these results indicate that state lotteries and lottery-type stocks attract very similar socioeconomic clienteles.

Number of Pages in PDF File: 53

Keywords: Individual investors, lottery-type stocks, skewness preference, gambling

JEL Classification: G11, G12, D12, D84

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Date posted: March 15, 2005 ; Last revised: September 6, 2008

Suggested Citation

Kumar, Alok, Who Gambles in the Stock Market? (September 4, 2008). AFA 2006 Boston Meetings Paper; Journal of Finance, Forthcoming; EFA 2005 Moscow Meetings Paper. Available at SSRN: https://ssrn.com/abstract=686022

Contact Information

Alok Kumar (Contact Author)
University of Miami - School of Business Administration ( email )
514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)
HOME PAGE: http://moya.bus.miami.edu/~akumar
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