The Study of Gambling Preference, Trading Pattern and Excess Comovement in Lottery-Like Stock Returns

Wang, Z. M., and Lou, N. H. 2021. The Study of Gambling Preference, Trading Pattern and Excess Comovement in Lottery-Like Stock Returns. NTU Management Review, 31 (3): 84-159. doi:10.6226/NTUMR.202112_31(3).0003

Zi-Mei Wang, Department of Finance, Ming Chuan University
Nan-Hsuan Lou, Bank of, Kaohsiung


The study investigates whether stock trading made by institutional and retail investors results in excess return comovement of lottery-like stocks in the Taiwanese stock market. Order-level data, such as order ratio, immediacy ratio, and order flow comovement, are used to determine trading patterns in the market, and direct evidence is provided to demonstrate that individual investors are the main cause of excess return comovement of lottery-like stocks. We find that (1) individual investors concentrate their trading on lottery-like stocks, make frequent trades, place aggressive orders, and have correlated order flows for various lottery-like stocks. A high level of comovement in retail investors' order flows for lottery-like stocks is associated with a high level of comovement among the stocks' excess returns. (2) Although institutional investors also trade lottery-like stocks, their order ratio is lower, and their trading reduces the excess return comovement of lottery-like stocks. (3) When overall market behavior leans toward speculation (e.g., in a bullish market, paying little attention to the lottery market, during the Chinese New Year period, or periods of economic boom), retail investors exhibit a high demand for lotterylike
stocks, which in turn strengthens the excess return comovement of these stocks. (4) Retail investors' trading of lottery-like stocks and the return comovement of these stocks also increase during months when financial statements are released. However, gambling trading of individual stocks does not affect the expenditure on research and development or the quality of financial statements.


gambling preferenceexcess return comovementorder flow comovementlottery-like stockorder submission behavior

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