Gambling activity and stock price volatility: A cross-country analysis

Shiller (2000) contends that gambling activity might promote risk-taking by individuals in other areas, such as firm decision making or in financial markets. In this study, we test the hypothesis that favorable attitudes towards gambling impact country-level stock price volatility. Using American Depositary Receipts (ADRs) to control for differing market structures, we find that countries with more gaming institutions, higher gambling losses per adult, and legalized online gambling have less stable stock prices. These results are robust to different measures of volatility and controls for both firm-specific characteristics and macroeconomic conditions. These findings support the idea that a country's culture toward gambling might generate greater levels of volatility in the country's financial markets. (C) 2020 Elsevier B.V. All rights reserved.