Timing of advertising and the MAX effect

Ching-Chi Hsu and Miao-Ling Chen

Journal of Behavioral and Experimental Finance, 2018, vol. 20, issue C, 105-114

Abstract: Bali et al. (2011) document that stocks with high maximum daily return (MAX) underperform compared to stocks with low maximum daily return, referred as the “MAX effect”. This paper is based on the argument of behavioral theory to investigate the influence of advertising on the MAX effect. Using investor sentiment index to reflect investors’ optimism grows, our evidence shows that the high advertising portfolio has significant MAX effect, and the predictive power of sentiment on MAX effect in the high advertising portfolio is more pronounced than in the low advertising portfolio. Findings suggest that firm managers spreading information by increasing advertising during high levels of sentiment will increase investors’ overconfidence. This increased overconfidence generates higher stock returns and thus attracts investors with a preference for risk-taking. Consequently, an increased demand for lottery-type stocks increases the MAX effect.

Keywords: MAX effect; Advertising; Sentiment; Preference lotteries; Lottery-type stocks (search for similar items in EconPapers)
JEL-codes: G11 G12 G23 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S2214635018301035

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:20:y:2018:i:c:p:105-114

DOI: 10.1016/j.jbef.2018.09.001

Access Statistics for this article

Journal of Behavioral and Experimental Finance is currently edited by Michael Dowling and Jürgen Huber

More articles in Journal of Behavioral and Experimental Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().