Lottery preference and stock market participation: evidence from China

Abstract

PurposeThis paper studies the effects of lottery preference on stock market participation at the macro level.Design/methodology/approachThe authors use the abnormal search volume intensity for lottery-related keywords from the Baidu search engine to capture retail investors' lottery preference. To measure stock market participation, they use five different macro-level measures from various angles. They perform the time series regression analysis in their empirical study.FindingsFirst, the validation tests show that the lottery preference index in this study is reasonable. Further, the authors find that lottery preference increases people's propensity to enter and trade in the stock market. Besides, they find that the effect on trading behavior is asymmetric, that is, high lottery preference has a more significant impact on trading behavior than low lottery preference. However, lottery preference has no significant effect on the stockholding.Originality/valueThis paper contributes to the growing literature that examines the determinants of stock market participation and the role of lottery/gambling preference in the financial market. It also provides direct and novel evidence for Statman's (2002) conclusions about the similarity of lottery players and stock traders.

Forecasting stock market returns with a lottery index: Evidence from China

“…Bali et al (2011) investigate the significance of extreme positive returns in the pricing of the stock cross‐section and find a significant negative correlation between the maximum daily return in the past month and the expected stock return. Zhang, Wei, Liu, and Wu (2023) use the abnormal search volume intensity to measure investor lottery preference and confirm that lottery preference has a significant impact on trading behavior. Jiang et al (2023) propose an aggregate lottery factor and show that this factor can add explanatory power for the cross‐section stock returns.…”

Information diversity and household portfolio diversification

“…Several factors have been advanced to explain the portfolio under-diversification problem, such as risk aversion, taxation, financial literacy, household ownership status, age, wealth, and so on (Agarwal & Chua, 2020;Dimmock et al, 2016;Flavin & Yamashita, 2002;Guiso et al, 2000;Poterba, 2002;Von Gaudecker, 2015;Xiao & Tao, 2021;Zhang, Song, et al, 2021;Zhang, Wei, et al, 2021). In addition, lack of information is a crucial factor for under-diversification.…”