New research paper worth scanning on parallels between gambling and lottery-style stocks:
ABSTRACT This study shows that people’s propensity to gamble and their investment decisions are correlated. At an aggregate level, individual investors prefer stocks with lottery features, and like lottery demand, the demand for lottery-type stocks increases during economic downturns. In the cross-section, socioeconomic factors that induce greater expenditure in lotteries are associated with greater investment in lottery-type stocks. Further, these investment levels are higher in regions with favorable lottery environments. Because lottery-type stocks under-perform, gambling-related under-performance is greater among low-income investors who excessively overweight lottery-type stocks. Collectively, these results indicate that state lotteries and lottery-type stocks attract very similar socioeconomic clienteles.
Now I can finally stop explaining to people that the price moves in Fannie/Freddie are no more meaningful than tradable lottery tickets.
Originally published at Paul Kedrosky’s blog and reproduced here with the author’s permission.