SAFE Working Paper No. 373

Do Gamblers Invest in Lottery Stocks?

Previous studies document a relationship between gambling activity at the aggregate

level and investments in securities with lottery-like features. We combine data on

individual gambling consumption with portfolio holdings and trading records to

examine whether gambling and trading act as substitutes or complements. We find

that gamblers are more likely than the average investor to hold lottery stocks, but

significantly less likely than active traders who do not gamble. Our results suggest

that gambling behavior across domains is less relevant compared to other portfolio

characteristics that predict investing in high-risk and high-skew securities, and that

gambling on and off the stock market act as substitutes to satisfy the same need,

e.g., sensation seeking.