Searching for Gambles: Gambling Sentiment and Stock Market Outcomes

Abstract

Using Internet search volume for lottery-related keywords to capture gambling sentiment shifts, we show that when the overall gambling sentiment is high, investor demand for lottery-like stocks increases, stocks with lottery-like characteristics earn positive abnormal returns in the short-run, managers are more likely to announce stock splits to cater to the increased demand for low-priced lottery stocks, and IPOs perceived as lotteries earn higher first-day returns. Further, the sentiment-return relation is stronger among low institutional-ownership firms and in regions where gambling is more acceptable. These results support the view that gambling sentiment has a spillover effect on the stock market.