Seminar Report
1. Summary
1.1 Aims
With the development of economy, the investing demands of people have become more and more diversified and different levels of people in the society have different expectations and goals of investing. As a result, the lottery-type stock has emerged in the stock market and then has been increasingly prevalent, whose demand shows an upward trend. Thus, the paper that we searched aimed to illustrate the logic of the increasing prevalence of such kind of stock and find out the socioeconomic factors that have significant influence on the demand of the lottery-type stock, hoping to provide reference to price such kind of stock and predict its development in the stock market in the future. 1.2 Methodologies
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Firstly, this paper used empirical data to prove the existing of connections between personal preferences of individual investors and the portfolio choosing decision, which strongly challenged the classic portfolio choosing theory which was based on the mean-variance preferences, and provided new evidence for the irrational side of investors. The dataset this paper used was both enrich and unique, including market level, individual level and macro level, which made his argument very solid from all aspects that may involving in. Another brilliant part was that the author took one step further and investigated what constituted of lottery preference, both on micro and macro side. Both individual features and the society environment could have much influence on the stock market. The result of this paper suggested that the connections between the society environment and the stock market may be much stronger that we use to think. The paper indicated that the changing of demographics may also have impact on the stock market, which is a brand new …show more content…
Firstly, the author assumed that the lottery feature are endogenous, thus it can be represented by endogenous factors of the stock, like the skewness of return distribution, and the volatility. And when investors choose these type mainly out of personal preferences, it is an irrational behavior. However, noise may exist on this channel. Bonner et al.（2007）found that reports published by analysts with higher reputation, may increase market reaction. And we knew that individual investors lacked ways to gain information. Those reports acted as an important reference of their investment decision. Firms with high growth potential usually attracts more analysts to cover. To sum up, the high volatility may come from some exogenous reasons. And this kind of reactions con not simply be regarded as irrational. So, more control variables should be added to stock level regression model, such as earning growth and numbers of analysts covering the firm. Secondly, when discussing the component of the lottery preference, the author used several macroeconomic factors to test his hypothesis. However, the author used only one lagged order of most variables. I really doubted the model was able to capture what really happened in the real world. I think for those macroeconomic time-series factor analysis, Vector Auto-Regression model would be more appropriate. Following author’s frame, it was the
Abcarian, Richard, and Marvin Klotz. "The Lottery." Literature: the Human Experience. 9th ed. Boston: Bedford/St Martin's, 2006. 350-56. Print.
The price elasticity of demand for lottery tickets shows that demand varies depending on the expected return from a winning ticket (Farrel 1). From this we deduce that this elasticity is relevant to the design of the lottery (Farrel 1). The way that the demand elasticity is derived is by comparing the rollover weeks with the non-rollover weeks. By doing this, the normal demand is recorded during the non-rollover weeks to see what level the demand is usually at. Then from there they can see how the demand increases as the lott...
The efficient market hypothesis has been one of the main topics of academic finance research. The efficient market hypotheses also know as the joint hypothesis problem, asserts that financial markets lack solid hard information in making decisions. Efficient market hypothesis claims it is impossible to beat the market because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information . According to efficient market hypothesis stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments . In reality once cannot always achieve returns in excess of average market return on a risk-adjusted basis. They have been numerous arguments against the efficient market hypothesis. Some researches point out the fact financial theories are subjective, in other words they are ideas that try to explain how markets work and behave.
Hensel, C. R., Ezra, D., & Ilkiw, J. H. (1991). The Importance of the Asset Allocation Decision.
Chapter 11 closes our discussion with several insights into the efficient market theory. There have been many attempts to discredit the random walk theory, but none of the theories hold against empirical evidence. Any pattern that is noticed by investors will disappear as investors try to exploit it and the valuation methods of growth rate are far too difficult to predict. As we said before the random walk concludes that no patterns exist in the market, pricing is accurate and all information available is already incorporated into the stock price. Therefore the market is efficient. Even if errors do occur in short-run pricing, they will correct themselves in the long run. The random walk suggest that short-term prices cannot be predicted and to buy stocks for the long run. Malkiel concludes the best way to consistently be profitable is to buy and hold a broad based market index fund. As the market rises so will the investors returns since historically the market continues to rise as a whole.
After playing the “Stock Market Game”, I have learned a lot of things from trading stocks. This is the first time I have played the “Stock Market Game”, it is actually an amazing game. It is not only the game but also the necessary lesson of economic market. I realized that this game is very hard to play if people do not have enough sensitive as well as the observation and the judgment skill. When I played this game, I was confused about how to increase my money up.
In turn everything in the present and the future is judged through the stocks as they hold a high importance in industrialized economies showing the healthiness of said countries economy. As investing discourages consumer spending over all decreases, it lead...