Flight to Lottery Ahead of FOMC Announcements: Institutional Investors or Retail Investors?

Guo, Haifeng; Hung, Chi‐Hsiou D.; Kontonikas, Alexandros; Zeng, Yeqin

Abstract

This paper studies the pre-Federal Open Market Committee (FOMC) announcement drift at the stock level. We hypothesize that investors have a higher propensity to speculate before the monetary policy announcements by the FOMC, due to the resolution of uncertainty and associated reduction in investors' fear. Indeed, we find evidence that there exists a drift of lottery-like stocks in the pre-FOMC window, when investors' fear gauge is lower, together with higher demand for lottery-like stocks and higher realized skewness. Moreover, we show that the demand for lottery-like stocks ahead of FOMC announcements is more prominent among institutional investors than retail investors. Our findings also identify the key role of transient and quasi-index institutional investors in our documented flight-to-lottery effect. Our findings advance the ongoing debates about the role of firms' investor heterogeneity in determining how monetary policy affects corporate managers' decisions. Our paper has important implications for central banks and managers by showing that investors' preference for lottery-like stocks increases before FOMC announcements.

Citation

Guo, H., Hung, C. D., Kontonikas, A., & Zeng, Y. (2023). Flight to Lottery Ahead of FOMC Announcements: Institutional Investors or Retail Investors?. British Journal of Management, 35(2), 1076-1096. https://doi.org/10.1111/1467-8551.12755

• Journal Article Type: Article
• Acceptance Date: Jul 16, 2023
• Online Publication Date: Jul 31, 2023
• Publication Date: 2023
• Deposit Date: Aug 11, 2023
• Publicly Available Date: Aug 11, 2023
• Journal: British Journal of Management
• Print ISSN: 1045-3172
• Electronic ISSN: 1467-8551
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 35
• Issue: 2
• Pages: 1076-1096
• DOI: https://doi.org/10.1111/1467-8551.12755
• Keywords: Management of Technology and Innovation; Strategy and Management; General Business, Management and Accounting
• Public URL: https://durham-repository.worktribe.com/output/1715484