Does what happen in Vegas stay in Vegas? Football gambling and stock market activity
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Does what happen in Vegas stay in Vegas? Football gambling and stock market activity Justin Cox 1 & Adam Schwartz 2 & Robert Van Ness 3 # Academy of Economics and Finance 2020
Abstract We examine whether lagged football betting payoffs result in changes in retail investing in lottery-like stocks. We show that lagged, low betting imbalances are associated with increases in retail stock participation, particularly for lottery-like stocks. This finding implies support for the “break-even” hypothesis that following negative sentiment and losses from football gambling, investors use lottery-like stocks to offset losses or break-even. This result holds for lottery-like stocks defined based on high idiosyncratic volatility and skewness as well as stocks that trade in over-the-counter (OTC) markets. Finally, we address whether the reverse relation exists, finding that only OTC market activity leads to increases in football betting activity but not football betting imbalances. Overall, our paper contributes to the literature investigating the relation between gambling sentiment and stock market activity. Keywords Gambling sentiment . Lottery-like stocks . Football JEL Classification G10 . G12 . G14
* Justin Cox [email protected] Adam Schwartz [email protected] Robert Van Ness [email protected]
1
Walker College of Business, Appalachian State University, Boone, NC 28608, USA
2
Freeman College of Management, Bucknell University, Lewisburg, PA 17837, USA
3
School of Business Administration, University of Mississippi, University, MS 38677, USA
Journal of Economics and Finance
1 Introduction Research finds that individual investors are attracted to financial assets with lottery-like payoffs. Kumar (2009) provides an identification of lottery-like stocks such as those with high idiosyncratic skewness and idiosyncratic volatility, limited dividend payouts, and a lower share price. Other studies show that lottery-like stocks tend to have low average returns, high return volatility, and high share turnover.1 Campbell et al. (2001) and Meng and Pantzalis (2018) show that lottery-like stocks are typically preferred by speculative investors such as retail investors. Recent evidence provided by Chen et al. (2018) suggests that when overall gambling sentiment is high, investor demand for lottery-like securities increases. In this study, we examine if gambling sentiment surrounding football betting is relate to trading activity in lottery-like stocks. Recent empirical studies (Dorn et al. 2014; Gao and Lin 2014) analyze if gambling attitudes and sentiment resonate in changes in stock market participation. These studies argue that attention associated with gambling-related events may encourage more retail investor participation in the stock market as sentiment from gambling may invoke a positive reaction to investing in the stock market. Hence, both positive sentiment and payoffs from gambling may lead to investor overconfidence in selecting stocks in the financial markets. Additionally, research suggests that increases
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