Do Past Extreme Returns Explain the Future Performance? MAX Effect Evidence from the Nordic Countries

Thumbnail Image

Files

bachelor_Kokljuschkin_Anton_2016.pdf (655.17 KB)

URL

Journal Title

Journal ISSN

Volume Title

School of Business | Bachelor's thesis
Unless otherwise stated, all rights belong to the author. You may download, display and print this publication for Your own personal use. Commercial use is prohibited.

Authors

Date

2016

Department

Rahoituksen laitos

Major/Subject

Mcode

Degree programme

Rahoitus

Language

en

Pages

27

Series

Abstract

I examine MAX effect, i.e. negative relation between high maximum daily returns in the past month and returns in the next month, in the Nordics. Bali et. al. (2011) first find the MAX effect in U.S.A. I examine the MAX effect in the Nordics because of lack of evidence in the Nordics and the Aboulamer et. al (2016) recent contradictory finding in Canada. I confirm the previous results about MAX effect. I find negative cross-sectional relation between high maximum returns in past month and returns in the next month after controlling for variables: beta, size, book-to-market ratio, momentum, short term reversal and illiquidity. My results are also robust for idiosyncratic volatility puzzle i.e. negative relation between high idiosyncratic volatility and returns introduced by Ang et. al (2009), in fact the idiosyncratic volatility puzzle seems to overturn to positive effect after controlling MAX. The effect is consistent with investors preference for lottery-like stocks which lead to over-demand, higher prices and lower expected returns for high MAX stocks.

Description

Thesis advisor

Önal, Bunyamin

Keywords

MAX effect, extreme returns, asset pricing, lottery-like stocks

Other note

Citation

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-201708176556

Collections

[kand] Kauppakorkeakoulu / BIZ (Open Access)