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It Could Be Overreaction, Not Lottery Seeking, That Is Behind Bali, Cakici and Whitelaw’s Max Effect

Jake Gorman, Farida Akhtar, Robert B. Durand and John Gould

Critical Finance Review, 2022, vol. 11, issue 3-4, 647-675

Abstract: Bali et al. (2011) introduce the MAX effect asset pricing anomaly: high MAX stocks (being stocks with the highest 10% of maximum single-day returns during a month) subsequently underperform. We find that this post-high MAX return underperformance is a general phenomenon that is independent of stocks being identified, ex-ante, as lottery-like. With an event study approach, we also find that the average high MAX event cumulative abnormal return pattern is indicative of overreaction embedded within high MAX returns.

Keywords: Extreme returns; Lottery-like payoffs; Gambling; Overreaction; Reversal (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 (search for similar items in EconPapers)
Date: 2022
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