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Why Do Mutual Funds Hold Lottery Stocks?

Author

Listed:
  • Agarwal, Vikas
  • Jiang, Lei
  • Wen, Quan

Abstract

We provide evidence regarding mutual funds’ motivation to hold lottery stocks. Funds with higher managerial ownership invest less in lottery stocks, suggesting that managers themselves do not prefer such stocks. The evidence instead supports that managers cater to fund investors’ preference for such stocks. In particular, funds with more lottery holdings attract larger flows after portfolio disclosure compared with their peers, and poorly performing funds tend to engage in risk shifting by increasing their lottery holdings toward year-ends. Funds’ aggregate holdings of lottery stocks contribute to their overpricing.

Suggested Citation

  • Agarwal, Vikas & Jiang, Lei & Wen, Quan, 2022. "Why Do Mutual Funds Hold Lottery Stocks?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(3), pages 825-856, May.
    • Handle: RePEc:cup:jfinqa:v:57:y:2022:i:3:p:825-856_1
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    Citations

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    Cited by:

    1. Agarwal, Vikas & Cochardt, Alexander & Orlov, Vitaly, 2025. "Birth order and fund manager’s trading behavior: Role of sibling rivalry," Journal of Corporate Finance, Elsevier, vol. 95(C).
    2. Wu, Yanran & Meng, Lili, 2025. "The “Betting” behavior of mutual fund families," Finance Research Letters, Elsevier, vol. 77(C).
    3. Sanjay Sehgal & Tarunika Jain Agrawal & Florent Deisting, 2025. "The tale of two tails and stock returns for two major emerging markets," Review of Quantitative Finance and Accounting, Springer, vol. 64(1), pages 163-189, January.
    4. Zewei Long & Wei Wang & Haohua Li & Xinghao Huang, 2024. "The individual motivation of investors' gambling mentality: Empirical evidence from gambling sentiment and lottery‐type stocks," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(5), pages 4515-4536, December.
    5. Sun, Xuchu & Zhang, Qing & Li, Tangrong, 2026. "How are retail investors informed? A perspective from institutional trading intention exposure," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 106(C).
    6. Agarwal, Vikas & Cao, Sean Shun & Huang, Shawn & Kim, Min, 2025. "Incentive realignment: Mutual funds' influence on executive compensation contracts," CFR Working Papers 25-08, University of Cologne, Centre for Financial Research (CFR).
    7. Li, Shi & Fu, Rongsha & Li, Meng, 2024. "Taking matters into their own hands: How Investors' stock preferences affect mutual fund flows in China," Pacific-Basin Finance Journal, Elsevier, vol. 88(C).
    8. Yi, Li & Yan, Yuelin, 2024. "Fund tournaments and style drift," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    9. Chen, Qi & Wang, Peng & Yang, Dong, 2025. "Mutual fund style drift measured using higher moments and its cash flow incentive," The North American Journal of Economics and Finance, Elsevier, vol. 76(C).
    10. Alok Kumar & Mehrshad Motahari & Richard J. Taffler, 2024. "Skewness Sentiment and Market Anomalies," Management Science, INFORMS, vol. 70(7), pages 4328-4356, July.
    11. Xinyu Cui & Olga Kolokolova & Jiaguo (George) Wang, 2024. "On the Other Side of Hedge Fund Equity Trades," Management Science, INFORMS, vol. 70(6), pages 3684-3710, June.
    12. Matteo Crosignani & Lina Han & Marco Macchiavelli, 2025. "Navigating Geoeconomic Risk: Evidence from U.S. Mutual Funds," Staff Reports 1172, Federal Reserve Bank of New York.

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