TitleThe MAX Effect: Lottery Stocks with Price Limits and Limits to Arbitrage
Publication TypeJournal Articles
Year of Publication2018
AuthorsHung, W, Yang, J
JournalJournal of Financial Markets
Volume41
Pagination77-91
Date Published2018
KeywordsDoctoral Program, Finance, MBA
Abstract

We modify the Bali et al.’s (2011) MAX measure (maximum daily return over the prior month) when the observed returns are capped at the daily price limit to address the issue of homogeneous MAX across stocks. Our results indicate that the modified MAX measure can be a significant predictor of future stock returns. The modified MAX effect is not a manifestation of the idiosyncratic volatility effect. We also find that the modified MAX measure could be an alternative proxy for arbitrage risk.

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