Preferences for maximum daily returns

Maren Baars and Hannes Mohrschladt

Journal of Economic Behavior & Organization, 2024, vol. 220, issue C, 343-353

Abstract: Previous research shows that individual investors are attracted to stocks with high maximum daily returns in the previous month (MAX). We examine the underlying sources of this preference. In a discrete choice investment experiment, subjects prefer high-MAX stocks only if these stocks are speculative with a comparably high level of return volatility. However, after controlling for volatility, subjects no longer favor high-MAX stocks. Hence, individuals do not prefer higher maximum daily returns per se. We find additional support for these findings in the aggregate trading patterns of Robinhood retail investors.

Keywords: MAX preferences; MAX effect; Choice experiment; Retail investors (search for similar items in EconPapers)
JEL-codes: C91 D91 G40 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:220:y:2024:i:c:p:343-353

DOI: 10.1016/j.jebo.2024.02.004

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