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Conference Paper: Do behavioral needs influence the trading activity of individual investors? Evidence from repeated natural experiments

TitleDo behavioral needs influence the trading activity of individual investors? Evidence from repeated natural experiments
Authors
KeywordsNatural experiments
Lottery
Stock trading
Substitution effect
Investor attention
Behavioral trading needs
Issue Date2010
Citation
The 2010 International Symposium on Financial Engineering and Risk Management (FERM 2010), Taipei, Taiwan, 10-12 June 2010. How to Cite?
AbstractMultiple natural experiments of large jackpot lotteries in Taiwan are used to document a substitution effect between individual investor trading and lottery buying. We establish five key findings. First, when the jackpot exceeds 500 million Taiwan dollars (about 15 million U.S. dollars), the number of shares traded by individual investors decreases by about 7% among stocks with high individual trading fraction, low market capitalization, high past returns, and high past turnover. Second, our approach reveals that the substitution effect is stronger among stocks with lottery features, with a decline in trading of about 9% among stocks with high return volatility and skewness. Third, the magnitude of the documented substitution effect increases monotonically with the jackpot. Fourth, firm-level trading activity reacts negatively to lottery drawings, and is statistically significant for a sizable number of firms. Finally, the aggregate number of shares traded by individual investors declines by 6% with lottery offerings. We attribute the substitution effect exemplified here to behavioral trading needs of individual investors, such as entertainment, sensation seeking, and gambling, and it appears consistent with the wider predictions of behavioral economics and finance.
Persistent Identifierhttp://hdl.handle.net/10722/127840

 

DC FieldValueLanguage
dc.contributor.authorGao, Xen_HK
dc.contributor.authorLin, TCen_HK
dc.date.accessioned2010-10-31T13:49:35Z-
dc.date.available2010-10-31T13:49:35Z-
dc.date.issued2010en_HK
dc.identifier.citationThe 2010 International Symposium on Financial Engineering and Risk Management (FERM 2010), Taipei, Taiwan, 10-12 June 2010.en_HK
dc.identifier.urihttp://hdl.handle.net/10722/127840-
dc.description.abstractMultiple natural experiments of large jackpot lotteries in Taiwan are used to document a substitution effect between individual investor trading and lottery buying. We establish five key findings. First, when the jackpot exceeds 500 million Taiwan dollars (about 15 million U.S. dollars), the number of shares traded by individual investors decreases by about 7% among stocks with high individual trading fraction, low market capitalization, high past returns, and high past turnover. Second, our approach reveals that the substitution effect is stronger among stocks with lottery features, with a decline in trading of about 9% among stocks with high return volatility and skewness. Third, the magnitude of the documented substitution effect increases monotonically with the jackpot. Fourth, firm-level trading activity reacts negatively to lottery drawings, and is statistically significant for a sizable number of firms. Finally, the aggregate number of shares traded by individual investors declines by 6% with lottery offerings. We attribute the substitution effect exemplified here to behavioral trading needs of individual investors, such as entertainment, sensation seeking, and gambling, and it appears consistent with the wider predictions of behavioral economics and finance.-
dc.languageengen_HK
dc.relation.ispartofInternational Symposium on Financial Engineering and Risk Management-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectNatural experiments-
dc.subjectLottery-
dc.subjectStock trading-
dc.subjectSubstitution effect-
dc.subjectInvestor attention-
dc.subjectBehavioral trading needs-
dc.titleDo behavioral needs influence the trading activity of individual investors? Evidence from repeated natural experimentsen_HK
dc.typeConference_Paperen_HK
dc.identifier.emailGao, X: pangpanggao@gmail.comen_HK
dc.identifier.emailLin, TC: tsechunlin@hku.hken_HK
dc.identifier.authorityGao, X=rp01062en_HK
dc.identifier.authorityLin, TC=rp01077en_HK
dc.description.naturepostprint-
dc.identifier.hkuros173648en_HK
dc.description.otherThe 2010 International Symposium on Financial Engineering and Risk Management (FERM 2010), Taipei, Taiwan, 10-12 June 2010.-

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