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Oct. 31, 2020, 9:33 a.m. EDT

People are spending over three times more money ‘gambling’ on hot stocks than at casinos and on lottery tickets and sports betting

Researchers studied ‘lottery’ stocks, which have low prices and high volatility

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By Mark Hulbert, MarketWatch


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Like Claude Rains’ character in the classic film “Casablanca,” would you be shocked to discover that a lot of gambling goes on in the stock market?

Prepare to be shocked. According to just-completed research, gambling in the stock market is far more prevalent than previously imagined. The study’s authors — all finance academics — calculate that the dollar value of the gambling is at least three-and-one-half times the combined global total of activities at casinos, online gambling, gaming machines, bingo/keno, lotteries, horse tracks and sports betting.

So don’t judge those who frequent casinos, lotteries, horse tracks and the like. Your activities in the stock market aren’t necessarily different, even if “investing” carries with it more societal legitimacy than “gambling.”

The study, titled “ Only Gamble in Town ,” was conducted by Alok Kumar of the University of Miami, Huong Nguyen of the University of Da Nang in Vietnam, and Talis Putnins of the University of Technology in Sydney, Australia.

Since the distinction between gambling and investing is a function of investor intent, it’s impossible to directly measure how much gambling goes on in the stock market. The researchers get around this difficulty by focusing on the trading volume of a group of so-called lottery stocks that are most likely to interest gamblers. If no gambling were going on in the stock market, then the trading volume of these stocks (relative to past norms) would be no different, on average, than for non-lottery-type stocks.

That’s not what the researchers found. The researchers define these lottery stocks as those that have low prices, high volatility, and return distributions that are positively skewed. This last characteristic means that they have a small probability of a really big payoff. Examples of lottery-price stocks that Kumar mentioned in an interview include:

•       Agenus /zigman2/quotes/203652144/composite AGEN -3.84%  

•       Amarin Corp /zigman2/quotes/201885540/composite AMRN +2.68%  

•       Astrotech /zigman2/quotes/205078794/composite ASTC +4.49%  

•       BioCryst Pharmaceuticals /zigman2/quotes/206499849/composite BCRX +2.15%  

•       Iamgold /zigman2/quotes/209642463/composite IAG +1.83%  

•       Immunogen /zigman2/quotes/208003500/composite IMGN -0.75%  

•      Mesa Air Group /zigman2/quotes/201991362/composite MESA +1.46%  

•      Socket Mobile /zigman2/quotes/202303438/composite SCKT -2.65%  

•      Spectrum Pharmaceuticals /zigman2/quotes/205199409/composite SPPI +1.79%  

/zigman2/quotes/203652144/composite
US : U.S.: Nasdaq
$ 3.51
-0.14 -3.84%
Volume: 3.53M
Nov. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
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Rev. per Employee
$457,463
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/zigman2/quotes/201885540/composite
US : U.S.: Nasdaq
$ 4.60
+0.12 +2.68%
Volume: 6.53M
Nov. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.74 billion
Rev. per Employee
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/zigman2/quotes/205078794/composite
US : U.S.: Nasdaq
$ 1.86
+0.08 +4.49%
Volume: 555,125
Nov. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$33.03 million
Rev. per Employee
$18,074
loading...
/zigman2/quotes/206499849/composite
US : U.S.: Nasdaq
$ 4.76
+0.10 +2.15%
Volume: 4.49M
Nov. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$822.80 million
Rev. per Employee
$348,821
loading...
/zigman2/quotes/209642463/composite
US : U.S.: NYSE
$ 3.33
+0.06 +1.83%
Volume: 7.81M
Nov. 25, 2020 7:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.54 billion
Rev. per Employee
$220,468
loading...
/zigman2/quotes/208003500/composite
US : U.S.: Nasdaq
$ 5.30
-0.04 -0.75%
Volume: 1.79M
Nov. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$1.00 billion
Rev. per Employee
$1.10M
loading...
/zigman2/quotes/201991362/composite
US : U.S.: Nasdaq
$ 6.24
+0.09 +1.46%
Volume: 1.98M
Nov. 25, 2020 4:00p
P/E Ratio
7.74
Dividend Yield
N/A
Market Cap
$217.80 million
Rev. per Employee
$203,712
loading...
/zigman2/quotes/202303438/composite
US : U.S.: Nasdaq
$ 2.70
-0.07 -2.65%
Volume: 296,422
Nov. 25, 2020 3:59p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$16.84 million
Rev. per Employee
$343,805
loading...
/zigman2/quotes/205199409/composite
US : U.S.: Nasdaq
$ 4.56
+0.08 +1.79%
Volume: 1.89M
Nov. 25, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$653.73 million
Rev. per Employee
N/A
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About Mark Hulbert

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Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD...

Mark Hulbert is editor of the Hulbert Financial Digest, which since 1980 has been tracking the performance of hundreds of investment advisors. The HFD became a service of MarketWatch in April 2002. In addition to being a Senior Columnist for MarketWatch, Hulbert writes a monthly column for Barron’s.com and a column on investment strategies for the Journal of the American Association of Individual Investors. A frequent guest on television and radio shows, you may have seen Hulbert on CNBC, Wall Street Week, or ABC’s World News This Morning. Most recently, Dow Jones and MarketWatch launched a new weekly newsletter based on Hulbert's research, entitled Hulbert on Markets: What’s Working Now.

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