Do Investors Buy Lotteries in China's Stock Market?

Motivated by existing evidence of individual investors' gambling preference in U.S. stock market (Kumar, 2009), this paper investigates characteristics of lottery-type stocks and individuals' gambling preference in China's stock market. Based on the practice situation of China's stock market, this paper improves existing classification method and defines the lottery-type stocks as stocks with high MAX, high turnover rate, and low price. We show some unique characteristics of lottery-type stocks in China's stock market. The distribution of lottery-type stocks in different industries is unbalanced, and the “lottery” feature is not permanent. The empirical results indicate that individual investors overweight stocks with lottery features in China's stock market. Further, we find that individual investors exhibit a stronger gambling preference in the bull market