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Do Individual Investors Treat Trading as a Fun and Exciting Gambling Activity? Evidence from Repeated Natural Experiments

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  • Xiaohui Gao
  • Tse-Chun Lin

Abstract

We hypothesize that individual investors treat trading as a fun and exciting gambling activity, implying substitution between this activity and alternative gambling opportunities. To examine this hypothesis, we study the lottery jackpots and the trading of individual investors in Taiwan. When the jackpots exceed 500 million Taiwan dollars, the trading volume decreases between 5.2% and 9.1% among stocks preferred by individual investors and between 6.8% and 8.6% among lottery-like stocks. The decline in individual buy volume is statistically indistinct from the decline in sell volume. Large jackpots are associated with less trading in options with high sensitivity to volatility.

Suggested Citation

  • Xiaohui Gao & Tse-Chun Lin, 2015. "Do Individual Investors Treat Trading as a Fun and Exciting Gambling Activity? Evidence from Repeated Natural Experiments," The Review of Financial Studies, Society for Financial Studies, vol. 28(7), pages 2128-2166.
    • Handle: RePEc:oup:rfinst:v:28:y:2015:i:7:p:2128-2166.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhu075
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