The stock market as a casino: Associations between stock market trading frequency and problem gambling

Abstract

Background and aims Personal investors decrease their stock market investment returns by trading frequently, which the behavioral finance literature has primarily explained via investors' overconfidence and low levels of financial literacy. This study investigates whether problem gambling can help account for frequent trading in a sample of active gambler/investors, as suggestive of frequent trading being in part driven by a behavioral addiction to gambling-like activities. Methods A retrospective cross-sectional study of 795 US-based participants, who reported both being active gamblers and holding stock market investments. Recollected stock trading activity (typical portfolio size, purchases and sales of stocks) was compared with scores on the Problem Gambling Severity Index, a financial literacy scale, and a measure of overconfidence. Results Self-reported relative stock portfolio turnover was positively associated with problem gambling scores. This association was robust to controls for financial literacy, overconfidence, and demographics, and occurred equally among investors of all self-reported portfolio sizes. Discussion and conclusions This study provides support for the hypothesis that behavioral addiction to gambling-like activities is associated with frequent stock market trading. New investment products that increase the ease of trading may therefore be detrimental to some investors.

Gambling Disorder among Porto’s University Students

“…Moreover, traders may develop cognitive biases, such as overconfidence or the illusion of control, leading them to believe they can consistently predict market movements and make profitable trades. These biases can perpetuate engagement in trading, even in the face of losses [ 1 , 25 , 26 ].…”

Gambling and financial markets a comparison from a regulatory perspective

“…Table 1 shows a summary of the most important differences and similarities between both industries and lists the main implications. Research suggests that some parts of the financial markets possess addictive properties (Granero et al, 2012 ; Fong, 2014 ; Arthur et al, 2016 ; Cox J. et al, 2020 ; Cox R. et al, 2020 ) and individuals who are active in the financial markets are showing signs of gambling-related problems (Guglielmo et al, 2016 ; Grall-Bronnec et al, 2017 ; Cox R. et al, 2020 ; Mosenhauer et al, 2021 ). Studies also show that certain gamblers substitute their desire to gamble with a wide range of financial products indicating a direct link between both markets (Dorn et al, 2015 ; Cookson, 2018 ).…”

Cryptocurrencies as Gamblified Financial Assets and Cryptocasinos: Novel Risks for a Public Health Approach to Gambling

“…Speculative investments are high-risk and short-term (e.g., day-trading and penny stocks) and may also involve the use of certain speculative strategies such as leverage, shorting and derivatives (Oksanen et al 2022a;Arthur et al 2016). Two recent studies have found that investors with greater compulsive gambling symptoms were twice as likely to invest in derivatives and leveraged products than baseline investors (Cox et al 2020) and that problem gambling was significantly associated with frequency of trading (Mosenhauer et al 2021). Gambling and trading therefore intersect in several ways.…”