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The Market Reaction of Bonus Shares Issuing and the Lottery-like Stock Preference: Evidence from Chinese Stock Market

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  • Haotian Xu
  • Wei Wei

Abstract

This paper documents the unique “large amount of stock dividends†phenomenon in the Chinese stock market and uses lottery-like stock preference to explain the inverted V shaped pattern of abnormal returns. Chinese listed firms often issue large percent of bonus shares, or transfer lots of capital reserve into common stocks. We find that after such operations, stocks tend to be overpriced in the short term and earn lower subsequent returns in the long run. Using two different measures of the lottery features, we document that the lottery characteristics of stocks significantly increase during the event window, which explains the inverted V shaped pattern on cumulative return spreads. Retail investors who chase these “lotteries†suffer welfare loss in the long run.  JEL classification numbers: G32, G41 Keywords: Speculation, Lottery, Stock dividends, Bonus shares

Suggested Citation

  • 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.
    • Handle: RePEc:spt:apfiba:v:10:y:2020:i:1:f:10_1_5
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    References listed on IDEAS

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    More about this item

    Keywords

    speculation; lottery; stock dividends; bonus shares;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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