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When do investors gamble in the stock market?

Author

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  • Gong, Pu
  • Wen, Zhuzhu
  • Xiong, Xiong
  • Gong, Cynthia M.

Abstract

Recent studies have uncovered gambling-motivated trading activities in financial markets in which investors seek lottery-type payoffs by using financial assets. Building on prospect theory, this study provides an important complement to prior research and investigates what period that investors make gambling-motivated trading in the stock market. Examining data from the Chinese stock market, investors are revealed to have asymmetric gambling preferences in gain and loss domains. Investors' gambling motivations are more easily triggered when the market is experiencing a loss. In such periods of time, investors may preferentially opt for lottery-type stocks that offer them a small chance to earn an extreme return at the risk of a likely small loss, simply due to their ‘aversion to a sure loss’.

Suggested Citation

  • Gong, Pu & Wen, Zhuzhu & Xiong, Xiong & Gong, Cynthia M., 2021. "When do investors gamble in the stock market?," International Review of Financial Analysis, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:finana:v:74:y:2021:i:c:s1057521921000557
    DOI: 10.1016/j.irfa.2021.101712
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    More about this item

    Keywords

    Gambling; Lottery-type stocks; Prospect theory; Risk preference;
    All these keywords.

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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