Academic Journal
The MAX Effect: Lottery Stocks with Price Limits and Limits to Arbitrage
"Journal of Financial Markets" 15 pages 2018
Journal Details
Journal of Financial Markets, 2018 Vol. 41 Pages 77-91
Finance
Journal Article, Academic Journal
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.