Gambling-Motivated Market Attention and Stock Market Volatility

Retail investors show gambling preferences and pay greater attention to the market than individual stocks. Previous studies report a positive and significant relationship between market attention and volatility. This relationship results from the joint effects of attention to investment-motivated and gambling-motivated components. However, the separate roles of these two components have not yet been examined. Hence, this study applied principal component analysis to identify the gambling-motivated component from market attention and gambling-related variables. The investment-motivated component is the regression residual of the market's attention paid to the gambling-motivated component. This study linearly relates these two components to volatility. The generalized method of moments regression was used to resolve endogeneity problems and biased estimates. The Google search volume index is a proxy for unobserved retail investors' market attention. Using a daily sample of the Thai market from August 6, 2008, to September 30, 2022 (a total of 3,450 observations), this study found a positive relationship between market attention and stock market volatility. This relationship results from the positive effects of both investment-motivated and gambling-motivated components. Attention to gambling is more influential than attention to investment. The explanatory powers of gambling-attention and investment-attention for volatility were 81.33% and 18.67%, respectively. These effects were less pronounced during the COVID-19 pandemic.

Gambling Attention and Retail Trading Volume

Retail investors pay limited attention to alternative gambling activities. More-attentive activities increase, whereas less-attentive activities decrease. However, attention is unobservable. Previous studies proxy gambling attention based on representative gambles, such as lotteries. These proxies incorporate general gambling and representative-gambling attention. Thus, previous studies have reported net effects. This study analyzes the effects of gambling attention on the trading of retail investors in the Stock Exchange of Thailand. Lotteries served as representative gambles. Gambling attention is decomposed into general gambling and lottery-specific components, enabling the study to separately estimate the effects of each component. Lotteries in Thailand offer fixed prizes. However, traditional proxies are not applicable. This study measures attention using the Google search volume index on a lucky-number query. The query is based on a superstitious belief that is unique to the Thai market. Using daily observations from August 6, 2008, to June 30, 2022, which totaled 3,388 observations, this study establishes that gambling attention has a net negative effect. When attention is decomposed, its general gambling and lottery-specific components exhibit positive and negative effects, respectively. Furthermore, the effect on the buying side was stronger than that on the selling side. During the COVID-19 pandemic, the lottery-specific effects became positive. Retail investors responded to lottery-specific attention through stock trading.

Reactions of Thailand's Stock Market to the 2020 U.S. Presidential Election

The U.S. presidential election is one of the most important events in the world, to which the stock markets of other countries react. The 2020 U.S. presidential election was unique due to delayed vote counts, the incumbent president's false election-fraud claims, and the violent riots at the U.S. Capitol Building. In this study, the reactions of Thailand's stock market are examined using the event-conditioning method for event-study analyses. The sample period ranges from August 6, 2019, to January 28, 2021. The period overlaps the period of the COVID-19 pandemic and Thailand's youth protest, thus constituting parameter-instability and confounding-event problems. This study relies on the international capital asset pricing model to mitigate the parameter-instability problem, as it constructs event-dummy control variables to resolve the confounding-event problem. The data comprises daily log returns of Morgan Stanley Global Investable Market Indices portfolios for Thailand and the world, in excess of the 1-month U.S. treasury bill rate. The reactions are found to be significant for the election, the final election results, and the presidential inauguration;they are non-significant for the Capitol riots and the incumbent president's false claims. For the same events, there is dissimilarity between the reactions of the Thai and U.S. markets.

(COVID-19)-Induced Flight to Quality

During crises, investment re-allocation from risky to safe assets, constitutes a flight to quality market environment. This study investigates the flight to quality in Thailand from risky stocks to safe government bonds. It describes returns using the modified, conditional regression model, and extracts the unobserved abnormal returns using the Kalman filtering technique. Estimates of abnormal returns were used in tests for the Granger causality of stocks to bonds, and for investigating the significance of the contributions of abnormal returns to a decreasing correlation. Flight to quality implies these test hypotheses. The data are returns representative of stocks listed on the Stock Exchange of Thailand and of bonds registered on the Thai Bond Market Association. The full period runs from August 28, 2018 to June 30, 2020, whereas the COVID-19 period covers November 18, 2019, to June 30, 2020. The return correlation in the COVID-19 period is more negative than that in the pre-(COVID-19) period. Stocks Granger cause bonds. The contribution share of COVID-19 to the falling correlation is 89.2080%. While the joint Wald-test for the non-significance of COVID-19's contributing correlations yields a p-value of 0.1144, the impulse response analyses suggest that they are all significant. Thailand has experienced flight to quality during the COVID-19 crisis.

World and National Stock Market Reactions to COVID-19

COVID-19—the world’s most recent pandemic, has caused economic and financial crises globally. The situation is continually evolving overtime in a series of events, and stock markets must respond immediately to these evolving events with updates of expected cash flows and the real and perceived risks. This study asks how and how early the world and national markets react, and to which event or events in the series. Using the event-study method, based on returns on the world, French, German, Italian, Spanish, U.K., U.S., Chinese, Philippine, and Thai stocks, the study found significant, negative reactions to the disease. The reactions were to COVID-19’s extensive media coverage and pandemic declaration, not to the evolving events and situations when they actually occur.