Abstract
Previous studies find that stocks with lottery features are overpriced. We show that anomalies induced by investors’ lottery preferences exist primarily among stocks that are far from their 52-week high prices. The results suggest that if stocks are near their 52-week highs, investors no longer prefer lottery stocks since they consider the 52-week high a psychological barrier or an upper bound for prices. We find that the dependency between lottery-related anomalies and nearness to the 52-week high is pronounced among stocks with low institutional ownership. Alternative explanations, such as limits to arbitrage and capital gains, do not explain our results.
Published Version
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