Investigating the Demand for Speculative Merchandises - A Study of Taiwan Lotto
Date Issued
2006
Date
2006
Author(s)
TIEN, JYUN-JI
DOI
en-US
Abstract
Chapter1 Willingness to Pay and the Demand for lotto
Why do many bettors participate in an unfair gamble, in particular a lotto game, while at the same time purchase insurance? We analyze the willingness-to-pay for lotto to find a “rational” explanation for a (local) risk-avertor’s participation in an unfair bet. A reasonable case is found where bettors’ preference can be approximately characterized as a locally risk-averse and sufficiently prudent cubic function. Such bettors dislike risk but prefer standard third moment of the payoff. The result suggests that the traditional effective price for lotto demand may omit important explanatory variables. We thus propose an alternative method to examine the demand for lotto by incorporating the second and the third moments of lotto’s payoff. Evidence from Taiwan Lotto data supports that lotto bettors could be both (locally) risk-averse and rational.
Chapter2 The Relationship between Speculative Merchandises and Financial Assets - A Study of Lotto and the Stock Market
Gambling industries such as horse racing, lotto, and baseball betting are pervasive and popular worldwide. The speculative merchandises can be regarded as one kind of assets at financial market. People’s attitudes toward gambling are reflected in their stock investment choices and stock returns. Moreover, other financial assets could affect returns of speculative merchandises. However, little attention has been given to the link between gambling and other financial assets. This paper investigates the relationship between speculative merchandises and other assets, for example, lotto and stock market.
We propose an empirical model which incorporates the second and third moments of lotto payoff to examine how lotto sales are affected by market returns. This model not only explains why bettors accept an unfair lotto game but also estimates coefficients of regression more accurately. Evidence from Taiwan Lotto and stock market shows that the effect price (the second moment, the third moment) is increased (decreased, decreased) by market returns because the ‘Substitution Effect’ could be stronger than ’Wealth Effect’. A positive relationship exists between lotto sales and market return after controlling the estimated moment from rational expectations. It seems reasonable to conclude that investors will buy more lotto tickets while earning positive returns on stock market after expelling the effect from rational expectations.
Subjects
樂透
偏態
有效價格
投機性商品
Skewness
Lotto
Gambling
Risk
Effective Price
Type
thesis