Three essays on finance

Abstract

Using large lottery jackpots on Saturday as repeated exogenous shocks to investor attention, we find that the Monday effect of market return and the Monday effect of anomalies only exist on Mondays with a large jackpot on the preceding Saturday. For example, the Monday effect of high idiosyncratic volatility stocks is a striking -64 bps when there was a large Saturday jackpot but is negligible otherwise. This is consistent with the hypothesis that individual investors allocate the weekends to process information and decide on trading strategies. Large jackpots during the weekends distract individual investors' attention from the stock market, resulting in less buying relative to selling, lower return and larger stock co-movement on the following Monday. The jackpot effect is larger among stocks preferred by individual investors. Interestingly, we do not find similar jackpot effect on weekday drawings.