Why Do Mutual Funds Hold Lottery Stocks?

Vikas Agarwal; Lei Jiang; Quan Wen

doi:10.1017/s0022109021000211

Journal of Financial and Quantitative Analysis Vol. 57 No. 3 2022

Why Do Mutual Funds Hold Lottery Stocks?

Vikas Agarwal^{1,2,3,4,5,6,7,8,9,10,11}; Lei Jiang^{1,2,3,4,5,6,7,8,9,10,11}; Quan Wen^{1,2,3,4,5,6,7,8,9,10,11}

¹ University of North Carolina at Charlotte · ² Central University of Finance and Economics · ³ Baruch College · ⁴ Baylor University · ⁵ University of Cologne · ⁶ Georgia State University · ⁷ Georgetown University · ⁸ University of Houston · ⁹ University of Virginia · ¹⁰ University of Pennsylvania · ¹¹ Tsinghua University

Abstract

We provide evidence regarding mutual funds’ motivation to hold lottery stocks. Funds with higher managerial ownership invest less in lottery stocks, suggesting that managers themselves do not prefer such stocks. The evidence instead supports that managers cater to fund investors’ preference for such stocks. In particular, funds with more lottery holdings attract larger flows after portfolio disclosure compared with their peers, and poorly performing funds tend to engage in risk shifting by increasing their lottery holdings toward year-ends. Funds’ aggregate holdings of lottery stocks contribute to their overpricing.

DOI: 10.1017/s0022109021000211
Volume: 57
Issue: 3
Pages: 825-856
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Why Do Mutual Funds Hold Lottery Stocks?

Abstract

Cite