Aiming for jackpot in the stock market / authored by Yosuke Kakinuma (Department of Finance and Banking, Faculty of Business Administration, Chiang Mai University, Chiang Mai, Thailand)
Emerald emerging markets case studies ; vol. 11, no. 3
Notes
Learning outcomes: The case illustrates the application of the prospect theory to risk-seeking investor behavior. It also provides an example that standard valuation methods such as discount cash flow, discount divided model and price multiples are not always applicable to value a stock. The students are exposed to a real situation where investors turn risk-seeking. The case offers insights into why irrational investors are attracted to risky assets and their probable socio-demographics
Case overview/synopsis: This case illustrates a case when investors become risk-seeking and how the prospect theory explains the investors' risk appetite. Energy Earth PCL is a coal importer and distributor incorporated in Thailand. Its shares had been suspended for trading before the Stock Exchange of Thailand allowed temporary trading in July 2019. A series of unfavorable events leading up to the temporary trading period suggest that the company's financial health was severely distressed. Its book value was presumably negative and its going concern was threatened. However, investors still bought the shares with the hope of hitting the jackpot. The case presents an example of the psychological aspects of humans when investing in a stock market. With an application of the prospect theory, irrational risk-seeking behavior explains the motivation to invest in risky stocks
