It could be overreaction, not lottery-seeking, that is behind Bali, Cakici And Whitelaw's MAX effect

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

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

Bali, Cakici and Whitelaw (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.
Original languageEnglish
Pages (from-to)647-675
Number of pages29
JournalCritical Finance Review
Volume11
Issue number3-4
DOIs
Publication statusPublished - 10 Aug 2022

Keywords

  • Extreme returns
  • Lottery-like payoff
  • Gambling
  • Overreaction
  • Reversal
  • Lottery-like payoffs

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