We hypothesize that individual investors treat trading as a fun and exciting gambling activity, implying substitution between this activity and alternative gambling opportunities. To examine this hypothesis, we study the lottery jackpots and the trading of individual investors in Taiwan. When the jackpots exceed 500 million Taiwan dollars, the trading volume decreases between 5.2% and 9.1% among stocks preferred by individual investors and between 6.8% and 8.6% among lottery-like stocks. The decline in individual buy volume is statistically indistinct from the decline in sell volume. Large jackpots are associated with less trading in options with high sensitivity to volatility. (JEL G11, G14, G15, H31) Do individual investors enjoy trading in the stock market, treating it like a form of fun and exciting gambling activity? In this paper, we hypothesize that some individual investors reduce their trading in stocks on large jackpot days because gambling in the lottery brings fun and excitement, similar to that of buying and selling stocks. We refer to the above hypothesis as the "fun and excitement" hypothesis, and we test its implications by studying repeated natural experiments of large jackpot lotteries in Taiwan. The key empirical finding is that individual investors trade less on large jackpot days or, equivalently, that there is a substitution effect between stock trading and lottery participation. The feedback and advice of David Hirshleifer (the editor) and two referees is gratefully acknowledged. For helpful comments and suggestions, we thank Gurdip Bakshi, John Beshears (WFA 2011 discussant), Laurent

We develop a new GMM-style methodology with good small-sample properties to assess the abnormal performance and risk exposure of a non-traded asset from a cross-section of cash flow data. We apply this method to a sample of 958 mature private equity funds spanning 24 years. Our methodology uses actual cash flow data and not intermediary self-reported Net Asset Values. In addition, it does not require a distributional assumption for returns. For venture capital funds, we find a high market beta and significant under-performance. For buyout funds, we find a low beta and no abnormal performance, but the sample is small. Larger funds have higher returns due to higher risk exposures and not higher alphas. We also find that Net Asset Values significantly overstate fund market values for the subset of mature and inactive funds. AbstractWe develop a new GMM-style methodology with good small-sample properties to assess the abnormal performance and risk exposure of a non-traded asset from a crosssection of cash ‡ow data. We apply this method to a sample of 958 mature private equity funds spanning 24 years. Our methodology uses actual cash ‡ow data and not intermediary self-reported Net Asset Values. In addition, it does not require a distributional assumption for returns. For venture capital funds, we …nd a high market beta and signi…cant under-performance. For buyout funds, we …nd a low beta and no abnormal performance, but the sample is small. Larger funds have higher returns due to higher risk exposures and not higher alphas. We also …nd that Net Asset Values signi…cantly overstate fund market values for the subset of mature and inactive funds.We thank Michael Brennan, Gurdip Bakshi, Magnus Dahlquist (AFA discussant), Frank de Jong, Thomas Dangl, Steve Kaplan, Rainer Lauterbach (EFA discussant), André Lucas, Tarun Ramadorai (SIFR discussant), Lubos Pástor, Per Stromberg, Marno Verbeek, Annette Vissing-Jorgensen (NBER discussant), Bas Werker, and seminar participants at Bergen, BI Oslo, HEC Paris, Tilburg, SIFR private equity conference, NBER meetings on private equity, the Vienna Symposia on Asset Management, the Rotterdam Conference on Asset Managment, the EFA 2007 in Ljubljana, the NTU IEFA conference, the ECB-CFS conference, and Netspar's Pension Workshop for valuable comments. We thank Inquire-UK for …nancial support. Views are those of authors and not that of Inquire-UK. All authors are a¢ liated to the University of Amsterdam Business School, Roetersstraat 11, 1018 WB Amsterdam, the Netherlands. Emails: J.J.A.G.Driessen@uva.nl, T.C.Lin@uva.nl and L.Phalippou@uva.nl. 1A new method to estimate risk and return of non-traded assets from cash ‡ows: The case of private equity fundsWe develop a new GMM-style methodology with good small-sample properties to assess the abnormal performance and risk exposure of a non-traded asset from a cross-section of cash ‡ow data. We apply this method to a sample of 958 mature private equity funds spanning 24 years. Our methodology uses actual cash ‡ow data and not intermediar...

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