Are Lottery-Like Stocks Overvalued in Markets That Have No Lotteries? – Evidence from Saudi Arabia

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.

Published in the journal, Finance Research Letters, Professor Shingo Goto and Ph.D. candidate,  Saad Alshammariab examine how lottery-like stocks are valued in Saudi Arabia where stock trades are dominated by Muslim individuals who have never experienced gambles/lotteries.

The authors find significant underperformance of lottery-like stocks in Saudi Arabia, especially among those with high stock turnover. The paper discuss a few channels through which investors in Saudi Arabia overpay for lottery-like characteristics despite their strong moral oppositions to gambles/lotteries.

Read Full Article