Social Interactions and Lottery Stock Mania

Turan G. Bali; David Hirshleifer; Lin Peng; Yi Tang; Qiguang Wang

doi:10.3386/w29543

Social Interactions and Lottery Stock Mania

Turan G. Bali, David Hirshleifer, Lin Peng, Yi Tang & Qiguang Wang

Working Paper 29543

DOI 10.3386/w29543

Issue Date December 2021

Revision Date November 2025

We find that social interactions are associated with stocks becoming more lottery-like and with greater investor overoptimism about the lottery characteristic. Heightened social media activity about a stock predicts extreme daily price run-ups—lottery events. Lottery event stocks subject to more extensive social media discussions subsequently experience greater retail buying pressure—particularly from Robinhood users—followed by lower returns. Moreover, lottery stocks of firms headquartered in more socially connected counties experience lower subsequent returns. Using staggered adoption of state-level social media privacy laws for identification, our findings support theories where social interactions incite investor excitement and asset price bubbles.

This paper draws upon parts of a previous working paper that was circulated under the title “Attention, Social Interaction, and Investor Attraction to Lottery Stocks.” We thank Hank Bessembinder, Huaizhi Chen (discussant), Ozgur Demirtas, Xi Dong, Joseph Engelberg (discussant), Marcel Fafchamps, Jon Garfinkel, Sanjev Goyal, Danling Jiang, Lei Jiang, Patrick Konermann, Dan Kovenock, Jens Kvarner, Weikai Li (discussant), Eric Lie, Yueran Ma, Yiming Qian, Larry Samuelson, Tyler Shumway (discussant), Johannes Stroebel, Adam Szeidl, Paul Tetlock, Alex Wolitzky, Kamil Yilmaz, Jianfeng Yu, Xiaoyan Zhang, Dexin Zhou, and Hao Zhou and seminar and conference participants at the American Finance Association Meeting, the Miami Behavioral Finance Conference, Baruch College, BI Norwegian Business School, Koc University, Rutgers University, Sabanci University, the European Networks Conference at the University of Essex, NYUAD Networks, Markets, State and Conflict conference, the State University of New York, Stony Brook, the Tsinghua Finance Workshop, the University of Iowa, and the University of International Business and Economics for helpful comments. Lin Peng acknowledges the Krell research grant for financial support and the Chinese University of Hong Kong ShenZhen for the data support she received while she was a visiting scholar. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
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Turan G. Bali, David Hirshleifer, Lin Peng, Yi Tang, and Qiguang Wang, "Social Interactions and Lottery Stock Mania," NBER Working Paper 29543 (2021), https://doi.org/10.3386/w29543.

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- December 3, 2021
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Social Interactions and Lottery Stock Mania

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