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Gambling Preference and the New Year Effect of Assets with Lottery Features

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  • James S. Doran
  • Danling Jiang
  • David R. Peterson

Abstract

This paper shows that a New Year's gambling preference of individual investors impacts prices and returns of assets with lottery features. January call options, especially the out-of-the-money calls, have higher retail demand and are the most expensive and actively traded. Lottery-type stocks outperform their counterparts in January but tend to underperform in other months. Retail sentiment is more bullish in lottery-type stocks in January than in other months. Furthermore, lottery-type Chinese stocks outperform in the Chinese New Year's Month but not in January. This New Year effect provides new insights into the broad phenomena related to the January effect. Copyright 2011, Oxford University Press.

Suggested Citation

  • James S. Doran & Danling Jiang & David R. Peterson, 2011. "Gambling Preference and the New Year Effect of Assets with Lottery Features," Review of Finance, European Finance Association, vol. 16(3), pages 685-731.
    • Handle: RePEc:oup:revfin:v:16:y:2011:i:3:p:685-731
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    9. Cookson, J. Anthony, 2018. "When saving is gambling," Journal of Financial Economics, Elsevier, vol. 129(1), pages 24-45.
    10. Grace Lepone & Joakim Westerholm & Danika Wright, 2023. "Speculative trading preferences of retail investor birth cohorts," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 555-574, March.
    11. Hur, Jungshik & Pettengill, Glenn & Singh, Vivek, 2014. "Market states and the risk-based explanation of the size premium," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 139-150.
    12. Vidal-García, Javier & Vidal, Marta, 2014. "Seasonality and idiosyncratic risk in mutual fund performance," European Journal of Operational Research, Elsevier, vol. 233(3), pages 613-624.
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    14. Al-Awadhi, Abdullah M., 2019. "Deviation from religious trading norms," Journal of Behavioral and Experimental Finance, Elsevier, vol. 22(C), pages 22-30.
    15. Nguyen, Hung T. & Truong, Cameron, 2018. "When are extreme daily returns not lottery? At earnings announcements!," Journal of Financial Markets, Elsevier, vol. 41(C), pages 92-116.
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    17. 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.
    18. Kelley Bergsma & Danling Jiang, 2016. "Cultural New Year Holidays and Stock Returns around the World," Financial Management, Financial Management Association International, vol. 45(1), pages 3-35, March.
    19. Marshall, Ben R. & Visaltanachoti, Nuttawat, 2010. "The Other January Effect: Evidence against market efficiency?," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2413-2424, October.
    20. Li, Xindan & Subrahmanyam, Avanidhar & Yang, Xuewei, 2018. "Can financial innovation succeed by catering to behavioral preferences? Evidence from a callable options market," Journal of Financial Economics, Elsevier, vol. 128(1), pages 38-65.
    21. Haotian Xu & Wei Wei, 2020. "The Market Reaction of Bonus Shares Issuing and the Lottery-like Stock Preference: Evidence from Chinese Stock Market," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(1), pages 1-5.
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    23. Andreou, Panayiotis C. & Kagkadis, Anastasios & Philip, Dennis & Tuneshev, Ruslan, 2018. "Differences in options investors’ expectations and the cross-section of stock returns," Journal of Banking & Finance, Elsevier, vol. 94(C), pages 315-336.

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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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