Are lottery-like stocks overvalued in markets that have no lotteries?–Evidence from Saudi Arabia
Date of Original Version
Existing studies suggest that stocks with lottery-like characteristics tend to underperform, especially when they attract retail trades, and that the degree of underperformance is closely related to investors’ forgiving (vs. forbidding) attitude toward gambles/lotteries embedded in their religious norms. We examine how lottery-like stocks are valued in Saudi Arabia where stock trades are dominated by Muslim individuals who have never experienced gambles/lotteries. We find significant underperformance of lottery-like stocks in Saudi Arabia, especially among those with high stock turnover. We discuss a few channels through which investors in Saudi Arabia overpay for lottery-like characteristics despite their strong moral oppositions to gambles/lotteries.
Finance Research Letters
Alshammari, Saad, and Shingo Goto. "Are lottery-like stocks overvalued in markets that have no lotteries?–Evidence from Saudi Arabia." Finance Research Letters , (2021). doi:10.1016/j.frl.2021.102460.