We examine whether lagged football betting payoffs result in changes in retail investing in lottery-like stocks. We show that lagged, low betting imbalances are associated with increases in retail stock participation, particularly for lottery-like stocks. This finding implies support for the “break-even” hypothesis that following negative sentiment and losses from football gambling, investors use lottery-like stocks to offset losses or break-even. This result holds for lottery-like stocks defined based on high idiosyncratic volatility and skewness as well as stocks that trade in over-the-counter (OTC) markets. Finally, we address whether the reverse relation exists, finding that only OTC market activity leads to increases in football betting activity but not football betting imbalances. Overall, our paper contributes to the literature investigating the relation between gambling sentiment and stock market activity.
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Our measure captures transactional bet imbalance as opposed to a volume or dollar imbalance.
In certain cases, the spread-adjusted score resulted in a push. However, we only have 175 spread-adjusted pushes, accounting for only 1.5% of entire sample of games. Thus, we remove these games from the analysis.
For example, as part of the 2015–2016 College Football Playoff (CFP), Oklahoma played Clemson. Oklahoma was favored by 3.5 points (thus, Clemson was given 3.5 points). The final score was Oklahoma 17 Clemson 37 and the adjusted score was Oklahoma 17 Clemson 40.5. Thus, the winning bets were those who bet on Clemson. For this game, we have 88,564 bets with 49% placed on Oklahoma and 51% placed on Clemson. Thus, (88,564 × 0.51) = 45,168 winning bets were placed and (88,564 × 0.49) = 43,396 losing bets were placed. The imbalance measure was (0.51–0.49 / 1.00) or (45,168–43,396 / 88,564) = 0.020. The raw imbalance was 45,168–43,396 = 1771.
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Cox, J., Schwartz, A. & Van Ness, R. Does what happen in Vegas stay in Vegas? Football gambling and stock market activity. J Econ Finan (2020). https://doi.org/10.1007/s12197-020-09513-9
- Gambling sentiment
- Lottery-like stocks