The MAX Effect

Wai Mun Fong
Additional contact information
Wai Mun Fong: National University of Singapore

Chapter 7 in The Lottery Mindset: Investors, Gambling and the Stock Market, 2014, pp 138-155 from Palgrave Macmillan

Abstract: Abstract With thousands of stocks to choose from, gamblingprone investors focus on stocks with salient lottery-type characteristics such as those that occasionally produce extremely large (“jackpot”) returns. This chapter examines the MAX strategy where this form of salience looms large. The MAX strategy buys stocks with high maximum daily returns in the previous month and sells those that have low maximum returns over the same period. Bali, Cakici, and Whitelaw (2011) show that the MAX strategy earns significantly negative risk-adjusted returns, mainly due to the anomalously low returns of high-MAX stocks. I present similar evidence on the MAX anomaly and show that high-MAX stocks have low-institutional ownership, suggesting that they attract mainly individual investors. I also present evidence that investor sentiment plays an important role in explaining investors’ optimism about high-MAX stocks.

Keywords: investor sentiment; maximum daily returns; salience (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (49)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:pal:palchp:978-1-137-38173-6_7

Ordering information: This item can be ordered from
http://www.palgrave.com/9781137381736

DOI: 10.1057/9781137381736_7

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().