The MAX Effect in an Oil Exporting Country: The Case of Norway

Muhammad Kashif and Thomas Leirvik
Additional contact information
Muhammad Kashif: Nord University Business School, Nord University, Universitetsaléen 11, 8049 Bodø, Norway
Thomas Leirvik: Nord University Business School, Nord University, Universitetsaléen 11, 8049 Bodø, Norway

JRFM, 2022, vol. 15, issue 4, 1-16

Abstract: This paper assesses the effects of investors’ lottery-seeking behavior on expected returns in the Norwegian equity market, a relatively small equity market dominated by the energy industry. We use the MAX factor defined as maximum daily return over the previous month as the proxy of investors’ preference for lottery-like stocks. Despite evidence from recent literature that MAX has a negative relationship with the expected returns in other developed European markets, we find that the relationship is generally insignificant in Norway; however, it becomes more nuanced when we control for the state of the oil market. The dominance of firms related to the oil industry, which have experienced tremendous growth over the last couple of decades, masks the effect to a large extent. Conditional regressions show that the MAX effect is only significant in the Norwegian stock market when the oil market is in the bearish state.

Keywords: the MAX effect; oil market; lottery preference; market states; investor sentiment (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1911-8074/15/4/154/pdf (application/pdf)
https://www.mdpi.com/1911-8074/15/4/154/ (text/html)

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:gam:jjrfmx:v:15:y:2022:i:4:p:154-:d:781878

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().