138 The Study of Gambling Preference, Trading Pattern and Excess Comovement in Lottery-Like Stock Returns comovement, to identify the type of investors that invest in lottery-like stocks habitually. A regression analysis, with excessive return comovement as the dependent variable and the interaction term between order flow comovement for different investor types and the lottery-like stock dummy variable as the independent variable, is performed to identify the relative importance of different investor types in the excess return comovement of lotterylike stocks. Conditional analyses are performed to determine whether the effect of order flow comovement for each investor type on excess return comovement varies depending on market sentiment or attention to the lottery market measured by the lottery prize. In addition, this study examines whether the trading behavior of each investor type affects excess return comovement differently between the Chinese New Year period and other months, or between months of economic boom and those of recession. This study also performs a regression analysis to determine whether stock-level gambling sentiment changes the relationship between the excess return comovement of lottery-like stocks and retail investor trading depending on the months when the financial statements are released or the proximity of the stock’s current price to its 52-week high. Another regression analysis is performed to investigate the effect of gambling trading activities on the issuer’s decision of research and development expenditure, with the proportion of the stock issuer’s R&D expenditure in the following year as the dependent variable and the stock’s lottery likeness (dummy variable) in the current year as the independent variable. Finally, a logistic regression analysis is performed to determine if the gambling trading undermines the quality of financial statement, with accounting restatements in the following year as the dependent variable and the stock’s lottery likeness in the current year as the independent variable. 3. Findings This study yields several empirical results. First, excess comovement in lottery-like stocks returns is significant in the Taiwanese stock market, which cannot be explained by the conventional risk factors. As the lottery index increases, the stock becomes more sensitive to changes in the returns on other lottery-like stocks. Second, some institutional investors trade the lottery-like stocks. Despite having a much lower order ratio than the retail investors, institutional investors exhibit the same degree of correlated order flow in lottery-like stocks as retail investors, especially for foreign institutional investors.
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