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    From anticipation to anxiety in a market for lottery-like stocks

    Access Status
    Fulltext not available
    Authors
    Boisen, M.
    Durand, Robert
    Gould, John
    Date
    2015
    Type
    Journal Article
    
    Metadata
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    Citation
    Boisen, M. and Durand, R. and Gould, J. 2015. From anticipation to anxiety in a market for lottery-like stocks. Review of Behavioral Finance. 7 (1): pp. 42-59.
    Source Title
    Review of Behavioral Finance
    DOI
    10.1108/RBF-09-2013-0029
    ISSN
    1940-5979
    School
    School of Economics and Finance
    URI
    http://hdl.handle.net/20.500.11937/42141
    Collection
    • Curtin Research Publications
    Abstract

    Purpose – The purpose of this paper is to investigate a unique sample of lottery-like stocks andcontextualize their short-run price behavior with respect to behavioral principles.Design/methodology/approach – The authors conduct a short-run event-study of the abnormalreturns for stock market investments in Australian small-cap oil and gas (O&G) explorers centered onthe drilling commencement (spudding) of 157 wildcat oil or gas wells drilled between January 2000 and June 2010. Findings – Small-cap stock market investments associated with newly spudded wildcat O&G wells are negative NPV gambles rather than fair (zero NPV) investments. Once a wildcat well is spudded, the 30-day expected abnormal return is 6-8 percent: wealth-maximizing stockholders are advised to sell upon news of spudding, but gamblers may wish to hold on for the chance of a 10.6 percent 30-day average abnormal return (if the well is not plugged and abandoned). In the lead-up to each gamble the authors observe a significant pre-spudding stock price run-up on average, perhaps indicative of positively affected investors aroused by an easily imagined successful wildcat gusher as per evidence on the influence of image and affect on investors’ decisions (MacGregor et al., 2000; Loewenstein et al., 2001; Rottenstreich and Hsee, 2001; Peterson, 2002).Originality/value – The wildcat drilling events considered in this paper are lottery-like by nature,and spudding represents the distinct moment when the gamble is unambiguously on, following shortly on from which investors either strike it lucky or strike out. The specifically small-cap wildcatters are typically heavily vested in one well at a time, therefore the sample stocks are uniquely lottery like. This differs from other studies which infer the lottery-like nature of their sample stocks from characteristics such as price and idiosyncratic volatility.

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