The Cost of Gambling Investors: Evidence from Reverse Splits

This study provides evidence that gambling investors embed a lottery premium into stock valuations. I use the fraction of opposing votes on 431 U.S. reverse stock split proposals as a proxy for the proportion of gambling investors in each firm (the gambling investor concentration, or GIC). An event study shows that firms with above-median GIC experience cumulative abnormal returns approximately ten percentage points lower than those with below-median GIC, with stronger effects in contexts of elevated gambling sentiment. These findings help explain the valuation losses around reverse splits.