When is a MAX not the MAX? How news resolves information uncertainty

Ran Tao, Chris Brooks and Adrian Bell

Journal of Empirical Finance, 2020, vol. 57, issue C, 33-51

Abstract: A well-known asset pricing anomaly, the “MAX” effect, measured by the maximum daily return in the past month, depicts stocks’ lottery-like features and investor gambling behaviour. Using the comprehensive stock-level Dow Jones (DJNS) news database between 1979 and 2016, we consider in a empirical setting how the presence of news reports affects these lottery-type stocks. We find an augmented negative relationship between MAX stocks without news and expected returns, whereby MAX with news coverage generates return momentum. The differing future return relationships between MAX stocks with and without news appears to be best explained by information uncertainty mitigation upon news arrival. Overall, our findings suggest that news plays a role in resolving information uncertainty in the stock market.

Keywords: MAX; Lottery-like stocks; News coverage; Information uncertainty; Stock return predictability; Investor sentiment (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:57:y:2020:i:c:p:33-51

DOI: 10.1016/j.jempfin.2020.03.002

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