Searching for Gambles: Investor Attention, Gambling Sentiment, and Stock Market Outcomes

Finance

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Abstract

This paper shows that changes in gambling attitudes affect asset prices and corporate decisions. Using the Internet search volume for lottery-related keywords to capture gambling sentiment shifts, we show that when the overall gambling sentiment is high, investor demand for lottery-like stocks increases, stocks with lottery-like characteristics earn positive abnormal returns in the short-run, managers are more likely to announce stock splits to cater to the increased demand for low-priced lottery stocks, and IPOs perceived as lotteries earn higher firstday returns. Further, the sentiment-return relation is stronger among low institutional-ownership firms and in regions where gambling is more acceptable.

Searching for Gambles:
Investor Attention, Gambling Sentiment, and Stock Market Outcomes