Research on Investment Preference and the MAX Effect in Chinese Stock Market

Gou Xiaoju and Bie Limei
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Gou Xiaoju: School of Management, University of Science and Technology of China, Hefei230026, China
Bie Limei: School of Management, University of Science and Technology of China, Hefei230026, China

Journal of Systems Science and Information, 2016, vol. 4, issue 6, 519-533

Abstract: Investors prefer to invest the stocks with high history returns, which results in that the return of the stock with high history maximum return is often lower than that with low history maximum return, i.e., the MAX effect. We show that the MAX effect is also significant in China stock market, that is, there is a significant negative relationship between maximum return and expected return. We then conduct portfolio analysis and Fama-Macbeth cross-sectional regression and find that range of price and turnover rate can explain the MAX effect in a certain extent, idiosyncratic volatility and idiosyncratic skewness cannot explain the negative relationship between maximum return and expected return. Moreover, maximum return explains the idiosyncratic volatility puzzle partially.

Keywords: MAX effect; idiosyncratic volatility; idiosyncratic skewness; range of price (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:jossai:v:4:y:2016:i:6:p:519-533:n:3

DOI: 10.21078/JSSI-2016-519-15

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