Loss from the chasing of MAX stocks: Evidence from China

Ya Gao, Xing Han and Xiong Xiong

The North American Journal of Economics and Finance, 2021, vol. 58, issue C

Abstract: We evaluate the implications of the MAX effect in the Chinese financial market. First, the MAX effect prevails in China: A zero-cost MAX strategy, which goes long (short) stocks with the highest (lowest) maximum daily return in the prior month, generates significant losses over the full sample period. Second, further analysis on firm characteristics confirms that the MAX stocks exhibit lottery-like features, and the (negative) performance of the MAX strategy varies over time and is related to investor sentiment. Third, the MAX effect gets weaker after the introduction of short-selling in 2010. Finally, we document that there exists a reversed MAX effect among mutual funds, because a similarly implemented MAX strategy generates significant positive risk-adjusted returns among equity funds in China.

Keywords: MAX effect; Lottery-like properties; Gambling behavior; Mutual funds (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:58:y:2021:i:c:s1062940821000966

DOI: 10.1016/j.najef.2021.101475

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