Institutional trading, investor sentiment, and lottery‐like stock preferences

Dallin M. Alldredge

The Financial Review, 2020, vol. 55, issue 4, 603-624

Abstract: This paper explores the time‐varying institutional investor preference for lottery‐like stocks. On average, institutional investor holdings reflect an aversion to lottery‐like stocks. However, I find that an institutions’ aversion to lottery‐like stocks is reduced when investor sentiment is low. Moreover, I find that during low sentiment periods, institutional investors have abnormally high trading profits in more positively skewed stocks. These results suggest that institutions reduce their aversion toward lottery‐like stocks during low sentiment periods to profitably trade in lottery‐like stocks.

Date: 2020
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