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The gambling preference and stock price: Evidence from China's stock market

Author

Listed:
  • Zhu, Hong-bing
  • Zhang, Bing
  • Yang, Li-hua

Abstract

Considering the strong gambling preference of retail investors in emerging markets and using the data of Chinese A-share listed companies from 2000 to 2018, this paper constructs an index of investor's gambling preference based on the theory of explicit preference and develops a factor model to capture the risk premium of gambling by introducing gambling factors. The results show that the factor model not only fits the gambling characteristics of the Chinese stock market well but also has strong explanatory power for common market anomalies. Through the index of capital gains over-hang (Wang et al., 2016), this paper further finds that facing different degrees of losses, investors will show different gambling preferences. The factor model also shows stronger explanatory power in the sample with more losses, revealing the investment characteristics of retail investors that the more you gamble and the more you lose. This study would be meaningful for exploring behavioral pricing factors, understanding emerging stock markets and supporting investment practice.

Suggested Citation

  • Zhu, Hong-bing & Zhang, Bing & Yang, Li-hua, 2021. "The gambling preference and stock price: Evidence from China's stock market," Emerging Markets Review, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:ememar:v:49:y:2021:i:c:s156601412100011x
    DOI: 10.1016/j.ememar.2021.100803
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    References listed on IDEAS

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    Cited by:

    1. Koh, Kanghyock & Han, Hyojin, 2023. "Stock market risk and suicide," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    2. Goodell, John W. & Alon, Ilan & Chiaramonte, Laura & Dreassi, Alberto & Paltrinieri, Andrea & Piserà, Stefano, 2023. "Risk substitution in cryptocurrencies: Evidence from BRICS announcements," Emerging Markets Review, Elsevier, vol. 54(C).
    3. Wang, Zhuo & Wang, Ziyue & Wu, Ke, 2023. "The role of anchoring on investors’ gambling preference: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    4. Esfandiar Maasoumi & Jianqiu Wang & Zhuo Wang & Ke Wu, 2024. "Identifying factors via automatic debiased machine learning," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(3), pages 438-461, April.
    5. Zhu, Hongbing & Yang, Lihua & Xu, Changxin, 2023. "Tracking investor gambling intensity," International Review of Financial Analysis, Elsevier, vol. 86(C).
    6. Liu, Chang & Sun, Peng & Zhu, Dongming, 2023. "Lottery preference, short-sale constraint, and the salience effect: Evidence from China," Economic Modelling, Elsevier, vol. 125(C).

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    More about this item

    Keywords

    Gambling preference; Gambling factor; Capital gains over-hang; Emerging market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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