Conditional demand for lottery-type stocks: Information spillovers and asset prices comovement

Previous literature has shown that investors’ demand for lottery-type stocks is conditional on a number of factors, and that these stocks underperform in the long run compared to non-lottery-type stocks. We document that investors’ demand for lottery-type stocks is conditional on days with information spillovers. Specifically, on macroeconomic news days, the demand for lottery-type stocks depends on information content, and their prices more closely follow the market index movements. This comovement tends to persist on FOMC announcement days and for firms without overlapping earnings announcements. We provide an information-based theory to explain the empirical pattern. • Demand for lottery-type stocks is conditional on days with information spillovers, such as macro announcement days. • Asset prices comove more with the market index surrounding these days even after controlling for beta anomaly. • This co-movement persists on FOMC announcement days and when firms have no overlapping earnings announcements. • An information-based theory explains the empirical patterns.