Active stock trading by individual investors is hard to explain, as investors who trade more actively tend to perform worse. We investigate to what extent gambling motives can explain excessive and speculative trading. We use five different proxies for gambling motives, ranging from fairly innocent, such as aspiring a small chance to become rich, to quite severe, namely compulsive gambling. We find that especially compulsive gambling can explain frequent trading by individual investors well, in addition to indicators for recreational gambling (e.g., in casinos). Further, investors driven by gambling motives tend to be in a significantly worse financial situation.
JEL Classification: G11; G02; L83
Keywords: individual investors; trading behavior; gambling