Gambling Preference and the New Year Effect of Assets with Lottery Features

This paper examines whether investors exhibit a New Year's gambling preference and whether such preference impacts prices and returns of assets with lottery features. In January, calls options have higher demand than put options, especially by small investors. In addition, relative to at-the-money calls, out-of-the-money calls are the most expensive and actively traded. In the equity markets, lottery-type stocks in the US outperform their counterparts mainly in January, but tend to underperform in other months. Lottery-type Chinese stocks outperform in the Chinese New Year month, but not in January. This New Year effect provides new insights into the broad phenomena related to the January effect.