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Stock loan lotteries and individual investor welfare

Author

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  • Jordan Moore

Abstract

Purpose - This paper proposes and models stock loan lotteries, a financial innovation that improves individual investor welfare. Stock loan lotteries are prize-linked payoffs using securities lending fees. Design/methodology/approach - This paper solves an existing theoretical model for an investor's utility-maximizing choices with and without stock loan lotteries and compares outcomes. Findings - Stock loan lotteries motivate prospect theory investors to buy and hold risky assets with high expected returns. Stock loan lotteries improve welfare more for poor investors and improve welfare more in a model with market frictions such as trading costs. Social implications - Stock loan lotteries increase household savings, leading to greater financial wealth and security in retirement. Originality/value - This paper proposes a new financial product that improves financial outcomes for individual investors.

Suggested Citation

  • Jordan Moore, 2020. "Stock loan lotteries and individual investor welfare," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 13(5), pages 610-630, August.
    • Handle: RePEc:eme:rbfpps:rbf-03-2020-0056
    DOI: 10.1108/RBF-03-2020-0056
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