Economic inequality and preference for stock market speculation

This study investigates the relationship between economic inequality and speculative trading, specifically the trading of lottery-type stocks, in the stock market. The trading level of lottery-type stocks is examined, along with income inequality change, using Kumar’s (2009) method to identify lottery-type stocks. Data is used from the stock markets of Sweden, Finland, Italy, South Africa, the United States (US), the United Kingdom (UK), Portugal and China. The trading activity of speculative stocks is captured by the turnover ratio of lottery-type stocks. Income inequality is measured by both the Gini coefficient and the decile dispersion ratio (DDR). The study’s main finding is that the trading level of lottery-type stocks relative to that of all stocks decreases when the inequality level in a country increases. The result implies that, in scenarios where a high level of income inequality is present, less speculation is observed in the stock market. Using the Google search volume index (SVI) to measure how much attention given to a gambling category, stock market speculation is found to be negatively correlated with lotteries and other gambling categories. This finding supports previous literature on the relationship between gambling and the stock market activities.