An Empirical Study on the Impact of Investor Gambling Factors on Stock Cross-Sectional Returns

Abstract

This study explores how investors' gambling preferences affect the cross-sectional returns of stocks in China's A-share market through behavioral finance factors. The portfolio ranking method and Fama-Macbeth regression analysis show how gambling behavior affects stock returns. On this basis, a multi-factor model (CHG model) incorporating gambling factor innovation was constructed to capture market dynamics more accurately. Research shows that going long on a low gaming index stock portfolio and short on a high gaming index stock portfolio can achieve significant average monthly returns. After adjustment by the Fama-French three-factor model, the returns of this long and short portfolio are significant at the 1% level. Significantly. In the CHG model, the coefficient of the gambling index Gamble is -0.0241, and the t-statistic is -6.1858, which is significant at the 1% level, further confirming the negative impact of gambling preferences on stock returns. In addition, the CHG model's ability to explain anomalies is also better than the CH-4 model. This study provides a new perspective on understanding behavioral finance factors in the Chinese stock market, and the results highlight the importance of considering behavioral finance factors in asset pricing and investment decisions in a highly irrational market environment. Future research can further explore the performance of behavioral financial factors in different market environments, as well as the differences and similarities of behavioral factors in different markets.