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

doi:10.1561/104.00000123

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

Department of Actuarial Studies and Business Analytics

Research output: Contribution to journal › Article › peer-review

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 language	English
Pages (from-to)	647-675
Number of pages	29
Journal	Critical Finance Review
Volume	11
Issue number	3-4
DOIs	https://doi.org/10.1561/104.00000123
Publication status	Published - 10 Aug 2022

Keywords

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

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10.1561/104.00000123

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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. ",

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AB - 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.

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KW - Lottery-like payoff

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KW - Reversal

KW - Lottery-like payoffs

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ER -

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

Abstract

Keywords

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