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Which proxy: Capturing lottery feature through aggregation

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  • Lei Jiang
  • Guofu Zhou
  • Yifeng Zhu

Abstract

We develop a lottery factor from five commonly utilized lottery measures and find this factor substantially enhances the well‐known factor models concerning market anomalies, particularly those related to skewness and value. Our findings emphasize that stocks exhibiting high lottery characteristics display considerable anomaly returns, primarily due to the short position of these stocks rather than their financial distress. Moreover, our research consistently indicates that lottery stocks frequently correlate with low short volume and higher shorting fees. This implies that the preference of retail investors to hold onto lottery stocks results in a reduced supply of these shares available for lending.

Suggested Citation

  • Lei Jiang & Guofu Zhou & Yifeng Zhu, 2025. "Which proxy: Capturing lottery feature through aggregation," Financial Management, Financial Management Association International, vol. 54(2), pages 331-362, June.
    • Handle: RePEc:bla:finmgt:v:54:y:2025:i:2:p:331-362
    DOI: 10.1111/fima.12483
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