Do Individual Investors Trade Stocks as Gambling? Evidence from Repeated Natural Experiments ∗

Multiple natural experiments of large jackpot lotteries in Taiwan are used to document that some individ-ual investors trade stocks as a form of gambling. Those investors substitute lottery gambling for stock trading. This substitution effect between lottery and stock is substantiated by the following five key findings. First, when the jackpot exceeds 500 million Taiwan dollars (about 15 million U.S. dollars), the number of shares traded by individual investors decreases by about 7 % among stocks with high individual trading fraction, low market capitalization, high past returns, and high past turnover. Second, the reduction in individual trading is about 7 % among stocks with lottery features, i.e. high return volatility and skewness. Third, the magnitude of the decline increases monotonically with the jackpot. Fourth, firm-level trading activity reacts negatively to large jackpots, and is statistically significant for a sizable number of firms. Finally, the aggregate trading activity by individual investors declines by about 5 % on large jackpot days