Are paper winners gamblers? Evidence from Australian retail investors

Frino, Alex; Lepone, Grace; Wright, Danika

doi:10.1111/acfi.12296

Cited by 8 publications

(10 citation statements)

References 24 publications

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“…For example, each 1% increase in the previous month's portfolio return leads to an increase of about 0.21% in their lottery stock holding, and each 1% increase in the current month's portfolio return leads to an increase of about 0.06% in their lottery stock holding. This is consistent with the house money effect reported in Frino et al (2019). Previous and concurrent market performance appear to affect lottery stock investment in the opposite way; when the market is performing better, lottery stock holdings become lower.…”

Section: Research Findingssupporting

confidence: 93%

“…Existing studies establish that investors with greater lottery stock holding weights underperform compared to other investors. It has also been reported that, while it is possible that some investors hold more lottery stocks due to the larger size of their portfolio, performance comparison based on portfolio‐size‐adjusted lottery stock weights leads to the same conclusion: investment portfolios with greater lottery stock weights achieve lower returns (Frino et al, 2019; Kumar, 2009). In this study, in addition to comparing the performances of different lottery holding groups and different age cohorts, we raise the following question: as the participation of investor birth cohorts in the stock market is time varying, and certain birth cohorts are more prone to hold lottery stocks, will the level of the presence of these cohorts in the market affect the returns of lottery stocks?…”

Section: Sample Data and Research Methodsmentioning

confidence: 94%

“…Newey–West standard errors are used in the regression analysis to adjust for possible heteroscedasticity and autocorrelation:

\begin{matrix} left \begin{matrix} left L W_{i, t} = β_{1} A R_{i, t ‐ 1} + β_{2} A R_{i, t} + β_{3} M R_{t ‐ 1} + β_{4} M R_{t} + β_{5} U E R_{t} + β_{6} N o B R_{t} + υ_{1} M_{i} \\ + υ_{2} A g e_{i, t} + υ_{3} O C A_{i} + υ_{4} S A_{i} + γ_{1} G D P_{i} + γ_{2} D R_{i} + γ_{3} I M P M_{i} + δ_{q} + ε_{i}, \end{matrix} \end{matrix}

where LW i,t is the lottery holding weight of account i during month t ;

{AR}_{i, t ‐ 1}

is account i' s monthly portfolio return in the month before t ; and

{AR}_{it}

is account i' s portfolio return during month t . Frino et al (2019) find that Australian retail investors are more likely to gamble in the stock market after making a paper gain with their investment, concluding that this is evidence of the house money effect. The first two variables in the regression are used to control the house money effect.…”

Section: Sample Data and Research Methodsmentioning

confidence: 99%

“…Consistent across these studies are the results that speculative investment preferences are not only detrimental to investor portfolio performance, but also affect stock market prices and can predict stock market returns, indicating a violation of market efficiency. Frino et al (2019) find that younger investors and males are more prone to gamble in the stock market with lottery‐like stocks than older people and females. They also provide evidence that investors are more likely to invest in lottery stocks when investment portfolio paper gains are present.…”

Section: Literature Reviewmentioning

confidence: 99%

“…This study investigates the drivers of stock market speculation by examining real market trading behaviours of retail investors. We extend the work of existing studies that focus on the relationship between speculative investments and investors' demographic and trading characteristics, such as Frino et al (2019) and Grant et al (2020), by also investigating the birth cohort effect. This study therefore adds to the strand of the literature that studies the impact of lifetime experiences on financial decision making, for example, Jianakoplos and Bernasek (2006), Malmendier and Nagel (2011), and Knüpfer et al (2017).…”

Section: Introductionmentioning

confidence: 97%

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Speculative trading preferences of retail investor birth cohorts

Lepone

Westerholm

Wright

2022

Accounting & Finance

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This study examines the effect of investor birth cohorts on speculative investment preferences. Using retail trading and portfolio data from Finland over two decades, we find that individuals who have experienced desirable macro-economic and social conditions during adolescence, such as high gross domestic product (GDP) growth and low divorce rates, are more likely to invest in speculative stocks. A positive relation is found between the proportion of speculative-prone cohorts in the stock market and returns of stocks of lottery nature. We provide new evidence on the adverse effect of speculative investments, finding that cohorts with higher speculative investment weights on their portfolios achieve lower absolute and risk-adjusted returns. We also provide support for earlier research that identifies a positive association between recent portfolio performance and the propensity to invest in speculative stocks.

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Section: Research Findingssupporting

confidence: 93%

Section: Sample Data and Research Methodsmentioning

confidence: 94%

“…Newey–West standard errors are used in the regression analysis to adjust for possible heteroscedasticity and autocorrelation:

\begin{matrix} left \begin{matrix} left L W_{i, t} = β_{1} A R_{i, t ‐ 1} + β_{2} A R_{i, t} + β_{3} M R_{t ‐ 1} + β_{4} M R_{t} + β_{5} U E R_{t} + β_{6} N o B R_{t} + υ_{1} M_{i} \\ + υ_{2} A g e_{i, t} + υ_{3} O C A_{i} + υ_{4} S A_{i} + γ_{1} G D P_{i} + γ_{2} D R_{i} + γ_{3} I M P M_{i} + δ_{q} + ε_{i}, \end{matrix} \end{matrix}

where LW i,t is the lottery holding weight of account i during month t ;

{AR}_{i, t ‐ 1}

is account i' s monthly portfolio return in the month before t ; and

{AR}_{it}

Section: Sample Data and Research Methodsmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 97%

See 3 more Smart Citations

Speculative trading preferences of retail investor birth cohorts

Lepone

Westerholm

Wright

2022

Accounting & Finance

Self Cite

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When Vegas Comes to Wall Street: Associations Between Stock Price Volatility and Trading Frequency Amongst Gamblers

Weiss-Cohen,

Newall,

Bart

et al. 2024

Int J Ment Health Addiction

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Both gambling and trading involve risk-taking in exchange for potential financial gains. In particular, speculative high-risk high-frequency trading closely resembles disordered gambling behaviour by attracting the same individuals who tend to be overconfident, sensation-seekers, and attracted to quick large potential payoffs. We build on these studies via an incentivised experiment, in which we examine how manipulated levels of market volatility affected trading frequency. Gamblers (N=604) were screened based on the existence of household investments and recruited across the four categories of the Problem Gambling Severity Index. The volatility of stocks was manipulated between-participants (high vs. low). Participants traded fictitious stocks and were provided bonuses based on the results of their trading activity (M=US$4.77, range=[0, 16.99]). Participants traded more often in the high-volatility market, and this finding remained robust after controlling for financial literacy, overconfidence, age, and gender. Many investors trade more frequently than personal finance guides advise, and these results suggest that individuals are more likely to commit this error in more volatile markets. Exploratory analyses suggest that the effect of the volatility manipulation was strongest amongst gamblers who were at low-risk of experiencing gambling harms. As they might be otherwise considered low-risk, these individuals could be overlooked by protective gambling interventions yet nonetheless suffer unmitigated financial harms due to unchecked excessive trading.

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