Existing studies in social psychology have found that priming has pervasive effects, mostly in laboratory settings and over short periods of time. This study investigates the priming effect in the real financial world and over longer periods of time. We hypothesize that successful lottery-like experiences raise investors’ subsequent demand for other lottery-like stocks by increasing the accessibility of tail events. By exploiting the randomized distribution of IPO shares in China as a natural experiment, we find that, compared with matched control investors, the investors who were allocated IPO shares (lottery winners) substantially shift their non-IPO portfolios toward lottery-like stocks over the three months subsequent to the distribution. This effect is more pronounced for investors winning IPO lotteries with lower winning rates or larger issue-price discounts. Moreover, lottery winners experience a decrease in their overall portfolio return by more than 1% within the three months subsequent to the distribution relative to matched control investors, which is largely in proportion to the increases in their subsequent demand for lottery-like stocks. Our findings are not explained by the house money effect or the wealth effect. Overall, our study suggests that lottery-like cues play a critical role in shaping investors’ gambling preferences in stock markets, providing field-based evidence for the long-term priming effect.
Jianfeng Yu is Jianshu Chair Professor of Finance at PBCSF, Tsinghua University, and Director of Research Center for Asset Management, Tsinghua University PBCSF-NIFR. Before joining PBCSF, Yu was a Professor in Finance and Executive Associate Dean of the School of Management and Economics at CUHK(Shenzhen), and a Piper Jaffray Professor in Finance at the Carlson School of Management, University of Minnesota. He conducts both theoretical and empirical research on behavioral finance and macro finance. His research is published in academic journals such as American Economic Review, Journal of Finance, Journal of Financial Economics, Journal of Monetary Economics, Management Science, Review of Economic Dynamics, and Review of Financial Studies. Yu holds a B.Sci. in Probability and Statistics from University of Science and Technology of China, an M.A. in Statistics from Yale University, and a Ph.D. in Finance from the Wharton School of Business, University of Pennsylvania. His research has won various awards including the Smith-Breeden First Prize, Chicago Quantitative Alliance Academic Competition First Prize, Inaugural AQR Insight Award (honorable mention), Crowell Memorial Prize (Third Prize) from PanAgora Asset Management, and the Institute for Quantitative Research in Finance (Q-Group) Research Award.