Do individual investors gamble to recoup losses?

This study presents novel empirical insights into the speculative behaviours of individual investors within the stock market. Using detailed data on individual investors' stock portfolios, we find that investors are more likely to invest in lottery stocks and to invest a larger proportion of their stock portfolio in lottery stocks after experiencing a large loss. These results are consistent with Thaler and Johnson's (1990) experimental findings, showing that investors, when faced with losses, tend to increase their risk appetite, displaying a preference for investment options that present a perceived opportunity to recoup losses.