Who Gambles in the Stock Market?
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
Date posted: March 15, 2005 ; Last revised: September 6, 2008