When Vegas comes to Wall Street: Associations between stock price volatility and trading frequency among gamblers

Weiss-Cohen, Leonardo; Newall, Philip; Bart, Yakov; Zloteanu, Mircea; Peacey, Mike; Ayton, Peter; Clacher, Iain

Abstract

Both gambling and trading involve risk-taking in exchange for potential financial gains. In particular, speculative high-risk high-frequency trading closely resembles disordered gambling behaviour by attracting the same individuals who tend to be overconfident, sensation-seekers, and attracted to quick large potential payoffs. We build on these studies via an incentivised experiment, in which we examine how manipulated levels of market volatility affected trading frequency. Gamblers (N=604) were screened based on the existence of household investments and recruited across the four categories of the Problem Gambling Severity Index. The volatility of stocks was manipulated between-participants (high vs. low). Participants traded fictitious stocks and were provided bonuses based on the results of their trading activity (M=US$4.77, range=[0, 16.99]). Participants traded more often in the high-volatility market, and this finding remained robust after controlling for financial literacy, overconfidence, age, and gender. Many investors trade more frequently than personal finance guides advise, and these results suggest that individuals are more likely to commit this error in more volatile markets. Exploratory analyses suggest that the effect of the volatility manipulation was strongest amongst gamblers who were at low-risk of experiencing gambling harms. As they might be otherwise considered low-risk, these individuals could be overlooked by protective gambling interventions yet nonetheless suffer unmitigated financial harms due to unchecked excessive trading.

• Journal Article Type: Article
• Acceptance Date: Dec 12, 2023
• Online Publication Date: Jan 18, 2024
• Publication Date: Jan 18, 2024
• Deposit Date: Dec 13, 2023
• Publicly Available Date: Jan 19, 2025
• Journal: International Journal of Mental Health and Addiction
• Print ISSN: 1557-1874
• Electronic ISSN: 1557-1882
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1007/s11469-023-01229-1
• Keywords: Investing; personal finance; disordered gambling; behavioural finance
• Public URL: https://nottingham-repository.worktribe.com/output/28426939
• Publisher URL: https://link.springer.com/article/10.1007/s11469-023-01229-1
• Additional Information: Accepted: 12 December 2023; First Online: 18 January 2024; : ; : All procedures followed were in accordance with the ethical standards of the responsible committee on human experimentation (institutional and national) and with the Helsinki Declaration of 1975, as revised in 2000 (5). Informed consent was obtained from all patients for being included in the study.