Washington, February 27 (ANI): People who invest in high-risk stocks that offer a meagre chance of high return have the same socio-economic characteristics as lottery players, according to new research from The University of Texas at Austin.
Alok Kumar, assistant professor of finance at the McCombs School of Business at The University of Texas at Austin, came to this conclusion after studying the demographics and financial transactions of 70,000 anonymous investors.
"We found that people who took risks with lottery-type stock typically earned 2 to 3 percent less than other investors," he said in the study paper, to be published in a forthcoming issue of the Journal of Finance.
Kumar describes lottery-type stocks as those that are inexpensive and come with a high chance of losing, but which also offer the small potential of a big payoff.
His study indicated that people with household income below average for their area were more likely to buy lottery-type stocks.
The researcher also observed that such stocks were purchased in areas with high unemployment and during economic downturns.
Besides that, the study also showed that regions with higher concentrations of Catholics-like in Massachusetts and Rhode Island-had a stronger preference for lottery-type stocks.
On the other hand, people in Protestant regions like areas in the South were less drawn to such stocks, according to the study.
Kumar says that this pattern mirrors ticket-purchasing trends in state lotteries by the two groups.
"It is particularly important to be aware of our gambling tendencies now because the urge to gamble is greater during difficult economic times," he said.
"Stock market 'gambles' are unlikely to pay off, and those who are close to retirement are likely more vulnerable to this urge because they might feel they only have a short time period to recoup their losses. Unfortunately, this behaviour can further worsen their situation and delay recovery," he added. (ANI)