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Gambling in the Hong Kong stock market

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  • Chan, Yue-Cheong
  • Chui, Andy C.W.

Abstract

This paper documents the existence of a lottery-stock premium in the Hong Kong stock market as reflected by the finding that stocks with stronger lottery features during the current month have poorer future return in the following month. The lottery-stock premium is weaker for stocks with persistent lottery features and is stronger when the overall stock market is more volatile or has poorer returns. In addition, the strength of lottery features can predict the future upside potential of the stock. Overall, this study indicates that people's gambling attitudes affect stock price movements and speculative investors are trading off between the poorer mean return and the better right-hand tail of the return distribution when they are buying the lottery-like securities.

Suggested Citation

  • Chan, Yue-Cheong & Chui, Andy C.W., 2016. "Gambling in the Hong Kong stock market," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 204-218.
    • Handle: RePEc:eee:reveco:v:44:y:2016:i:c:p:204-218
    DOI: 10.1016/j.iref.2016.04.012
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    Cited by:

    1. Hung, Weifeng & Yang, J. Jimmy, 2018. "The MAX effect: Lottery stocks with price limits and limits to arbitrage," Journal of Financial Markets, Elsevier, vol. 41(C), pages 77-91.
    2. Li, Yi & Urquhart, Andrew & Wang, Pengfei & Zhang, Wei, 2021. "MAX momentum in cryptocurrency markets," International Review of Financial Analysis, Elsevier, vol. 77(C).
    3. Gan, Christopher & Nartea, Gilbert V. & Wu, Ji (George), 2018. "Predictive ability of low-frequency volatility measures: Evidence from the Hong Kong stock markets," Finance Research Letters, Elsevier, vol. 26(C), pages 40-46.
    4. Ali, Syed Riaz Mahmood & Hasan, Mohammad Nurul & Östermark, Ralf, 2020. "Are idiosyncratic risk and extreme positive return priced in the Indian equity market?," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 530-545.
    5. Lin, Mei-Chen, 2023. "Time-varying MAX preference: Evidence from revenue announcements," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    6. Wang, Zi-Mei & Lien, Donald, 2023. "Limited attention, salient anchor, and the modified MAX effect: Evidence from Taiwan’s stock market," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
    7. Grobys, Klaus & Junttila, Juha, 2021. "Speculation and lottery-like demand in cryptocurrency markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 71(C).
    8. Tsai, Chia-Fen & Chang, Jung-Hsien & Tsai, Feng-Tse, 2021. "Lottery preferences and retail short selling," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    9. Wan, Xiaoyuan, 2018. "Is the idiosyncratic volatility anomaly driven by the MAX or MIN effect? Evidence from the Chinese stock market," International Review of Economics & Finance, Elsevier, vol. 53(C), pages 1-15.
    10. Gong, Pu & Wen, Zhuzhu & Xiong, Xiong & Gong, Cynthia M., 2021. "When do investors gamble in the stock market?," International Review of Financial Analysis, Elsevier, vol. 74(C).
    11. Lin, Mei-Chen & Lin, Yu-Ling, 2021. "Idiosyncratic skewness and cross-section of stock returns: Evidence from Taiwan," International Review of Financial Analysis, Elsevier, vol. 77(C).
    12. Lin, Chiao-Han & Yen, Kuang-Chieh & Cheng, Hui-Pei, 2021. "Lottery-like momentum in the cryptocurrency market," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    13. Ali, Syed Riaz Mahmood & Ahmed, Shaker & Östermark, Ralf, 2020. "Extreme returns and the investor’s expectation for future volatility: Evidence from the Finnish stock market," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 260-269.
    14. Zhu, Hong-bing & Zhang, Bing & Yang, Li-hua, 2021. "The gambling preference and stock price: Evidence from China's stock market," Emerging Markets Review, Elsevier, vol. 49(C).
    15. Alharbi, Samar S. & Atawnah, Nader & Ali, Muhammad Jahangir & Eshraghi, Arman, 2023. "Gambling culture and earnings management: A novel perspective," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 520-539.
    16. Melisa Ozdamar & Levent Akdeniz & Ahmet Sensoy, 2021. "Lottery-like preferences and the MAX effect in the cryptocurrency market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-27, December.

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