Maxing out: the puzzling influence of past maximum returns on future asset prices in a cross-country analysis

Shuonan Yuan (), Marc Oliver Rieger () and Nilüfer Caliskan
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Shuonan Yuan: Xi’an Polytechnic University
Marc Oliver Rieger: University of Trier
Nilüfer Caliskan: Kieger Wealth and Asset Management

Management Review Quarterly, 2020, vol. 70, issue 4, No 4, 567-589

Abstract: Abstract We examine the role of extreme positive returns in the cross-section of stock returns in seven countries. While Bali et al. (J Financ Econ 99:427–446, 2011) find a significantly negative relation between the maximum daily returns over the past month (MAX) and the expected returns in the following month, we find that this relation disappears and even often reverses. The positive relation is found in Canada, the UK and the US, while the pattern in China is more in line with the previous findings, and for Germany, France and Japan the effect is not statistically significant. Further evidence using the US data suggests that the positive effect of MAX is largely a proxy for the idiosyncratic volatility. Moreover, we find that the MAX effect is mainly concentrated on periods before 1990’s given the same dataset as Bali et al. (2011). Collectively, our results indicate that the MAX effect is not stable over time. We conjecture the changing proportion of MAX-seeking investors is a crucial determinant of the MAX-return relation.

Keywords: Extreme positive returns; Cross-sectional returns; Factor-model; Idiosyncratic volatility (search for similar items in EconPapers)
JEL-codes: G12 G4 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11301-019-00176-3

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