Demand for lotteries: the choice between stocks and options
Files
First author draft
Date
2018-06-28
DOI
Authors
Filippou, Ilias
Garcia-Ares, Pedro A.
Zapatero, Fernando
Version
First author draft
OA Version
Citation
Filippou, Ilias and Garcia-Ares, Pedro Angel and Zapatero, Fernando, Demand for Lotteries: The Choice between Stocks and Options (June 28, 2018). Available at SSRN: https://ssrn.com/abstract=3016462 or http://dx.doi.org/10.2139/ssrn.3016462
Abstract
The literature has demonstrated that stocks with skewness-like haracteristics – lotteryness– are the target of a type of investors willing to pay a premium to achieve exposure to skewness. We show that only stocks without options written on them have the potential to attract skewness-seeking investors; furthermore, out-of-the-money
options are the dominant security with lottery characteristics for skewness investors.
Finally, we find evidence that suggests that skewness-seeking in out-of-the money options is driven mainly by retail investors, while average negative returns in at-the-money options seem to be linked to the covered-call strategies of mutual funds.