posted on 2021-10-18, 13:04authored byPu Gong, Zhuzhu Wen, Xiong Xiong, Cynthia GongCynthia Gong
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’.
Funding
National Natural Science Foundation of China (Grant #71991473 and #71671076)
This paper was accepted for publication in the journal International Review of Financial Analysis and the definitive published version is available at https://doi.org/10.1016/j.irfa.2021.101712