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Searching for Gambles: Gambling Sentiment and Stock Market Outcomes

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  • Chen, Yao
  • Kumar, Alok
  • Zhang, Chendi

Abstract

Using Internet search volume for lottery to capture gambling sentiment shifts, we show that when the overall gambling sentiment is strong, investor demand for lottery stocks increases, these stocks earn positive short-run abnormal returns, managers are more likely to split stocks to cater to the increased demand for low-priced lottery stocks, and initial public offerings (IPOs) earn higher first day returns. Further, the sentiment-return relation is stronger among low institutional ownership firms, headquartered in regions where gambling is more acceptable and local bias is stronger. These results suggest that gambling sentiment has a spillover effect on the stock market.

Suggested Citation

  • Chen, Yao & Kumar, Alok & Zhang, Chendi, 2021. "Searching for Gambles: Gambling Sentiment and Stock Market Outcomes," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 56(6), pages 2010-2038, September.
    • Handle: RePEc:cup:jfinqa:v:56:y:2021:i:6:p:2010-2038_5
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    Citations

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    Cited by:

    1. Chi Liao, 2023. "Risk‐taking begets risk‐taking: Evidence from casino openings and investor portfolios," The Financial Review, Eastern Finance Association, vol. 58(1), pages 143-165, February.
    2. Lu, Jing & Ho, Keng-Yu & Ho, Po-Hsin & Ko, Kuan-Cheng, 2023. "CEO overconfidence, lottery preference and the cross-section of stock returns," Finance Research Letters, Elsevier, vol. 54(C).
    3. Xue, Lixing & Chen, Chong & Wang, Na & Zhang, Lirong, 2023. "Gambling culture and corporate financialization: Evidence from China's welfare lottery sales," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    4. Lin, Mei-Chen, 2023. "Time-varying MAX preference: Evidence from revenue announcements," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    5. Kwon, Kyung Yoon & Min, Byoung-Kyu & Sun, Chenfei, 2022. "Enhancing the profitability of lottery strategies," Journal of Empirical Finance, Elsevier, vol. 69(C), pages 166-184.
    6. Cyrus A. Ramezani & James J. Ahern, 2023. "How Do Financial Market Outcomes Affect Gambling?," JRFM, MDPI, vol. 16(6), pages 1-25, June.
    7. Kozo UEDA & Fei Gao, 2024. "How Do Gamblers React to Wins? Evidence from Bank Transaction Data in Japan," CIGS Working Paper Series 24-019E, The Canon Institute for Global Studies.

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