Does trading in lottery stocks increase after a stretch of negative market returns?

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dc.contributor Aalto-yliopisto fi
dc.contributor Aalto University en Koivumaa, Villeveikka 2016-08-16T11:35:57Z 2016-08-16T11:35:57Z 2016
dc.description.abstract Prospect theory predicts that people increase their risk-seeking behaviour after experiencing losses, because they are in the mindset of breaking-even (Kahneman and Tversky, 1979). As lotteries serve as a fruitful proxy for risk (Friedman and Savage, 1948), this novel study explores trading in lottery-like stocks, i.e. stocks with low price, high idiosyncratic volatility and skewness, during 2001-2015 with U.S. data. Lottery stocks that are in the loss domain of capital gains are expected to experience a surge in turnover following negative market returns. The intuition is that on average investors incur losses, when the market does, and want to break-even relative to their initial wealth by investing into lottery stocks. The prior capital gains are taken into account, because lottery-related anomalies are dependent on capital gains domain (An et al., 2015). The approach is unique, because it combines variables from several previously unlinked studies into a series of OLS regressions. The results show that the absolute dollar-volume-based trading in lottery stocks with prior capital losses increases by 0.78% (1.22%) at the 5% (0.1%) significance level with a 50% (33%) categorization threshold, when previous month's market returns are below -5.0%. The finding is robust to penny stocks, but not to a slight change in model. Evidence for lottery stocks' relative attractiveness against stocks that exhibit oppositional characteristics, on the other hand, can be found only, if penny stocks are excluded from the sample. Overall, the results statistical significance varies considerably across specifications and economical importance is weak. en
dc.format.extent 52
dc.language.iso en en
dc.title Does trading in lottery stocks increase after a stretch of negative market returns? en
dc.type G2 Pro gradu, diplomityö fi Kauppakorkeakoulu fi School of Business en
dc.contributor.department Rahoituksen laitos fi
dc.contributor.department Department of Finance en
dc.subject.keyword Behavioural finance
dc.subject.keyword Prospect theory
dc.subject.keyword Risk-seeking tendency
dc.subject.keyword Lottery stocks
dc.identifier.urn URN:NBN:fi:aalto-201609083632
dc.type.dcmitype text en
dc.programme.major Rahoitus fi
dc.programme.major Finance en
dc.type.ontasot Pro gradu tutkielma fi
dc.type.ontasot Master's thesis en
dc.subject.helecon rahoitus
dc.subject.helecon financing
dc.subject.helecon behavioral finance
dc.subject.helecon behavioral finance
dc.subject.helecon riski
dc.subject.helecon risk
dc.subject.helecon käyttäytyminen
dc.subject.helecon behaviour
dc.subject.helecon rahapelit
dc.subject.helecon lottery
dc.subject.helecon osakkeet
dc.subject.helecon shares
dc.ethesisid 14596 2016-06-16
dc.location P1 I

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