Information acquisition, risk perception, and lottery stock trading: The dual effects of investor education in China

Using survey data on 27,028 Chinese individual equity investors during 2021–2023, we examine how investor education shapes trading in lottery-type *ST (special treatment) stocks. We document a dual-effect framework through which investor education operates via two opposing channels. Through a risk perception channel, investor education enhances financial literacy and delisting risk awareness, thereby reducing the propensity for participation in lottery stocks (the risk-deterring effect). Through an information acquisition channel, it increases the time devoted to information search and analysis, enabling investors to identify lottery-like trading opportunities and thus facilitating risk-seeking behavior (the risk-seeking effect). Empirically, we find that the risk-seeking effect dominates the risk-deterring effect during our sample period, particularly among high-risk-tolerance investors. However, we find significant heterogeneity: the risk-seeking effect is neutralized among investors with lower risk preferences, where the two channels approximately offset each other, while the risk-deterring mechanism is most clearly operative among investors with higher financial literacy who correctly understand delisting risk warnings. The risk-seeking effect concentrates among aggressive traders and margin users. Importantly, we document a structural shift in *ST stocks' risk-return profile: since 2022, following intensified delisting enforcement, *ST stocks' Sharpe ratios have turned negative and fallen below those of non-*ST stocks. Our findings suggest that current programs successfully enhance information processing capabilities and the risk perception channel effectively deters speculative trading among risk-averse investors, yet risk management awareness remains insufficiently cultivated among high-risk-seeking investors—a gap that intensified delisting enforcement appears well-positioned to address.