Working Paper: NBER ID: w29543
Authors: Turan G. Bali; David Hirshleifer; Lin Peng; Yi Tang
Abstract: We find that among stocks dominated by retail investors, the lottery anomaly is amplified by high investor attention (proxied by high analyst coverage, salient earnings surprises, or recency of extreme positive returns) and intense social interactions (proxied by Facebook social connectedness or population density near firm headquarters). Such stocks’ lottery features attract greater Google search volume and retail net buying, followed by more negative earnings surprises and lower announcement-period returns. The findings provide insight into the roles of attention and social interaction in securities markets, and support the hypothesis that these forces contribute to investor attraction to lottery stocks.
Keywords: Investor Attention; Social Interaction; Lottery Stocks; Behavioral Finance
JEL Codes: D84; D91; G12; G14; G4; G41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High investor attention (analyst coverage and salient earnings surprises) (G24) | Increased retail investor attraction to lottery stocks (H27) |
| Social interactions (population density and Facebook social connectedness) (C92) | Investor attention towards lottery stocks (H27) |
| High attention and social interaction characteristics (D91) | Negative earnings surprises and lower announcement-period returns (G14) |