Izvorni znanstveni članak
https://doi.org/10.1080/1331677X.2021.1965000
Predictability of extreme daily returns and Preference for lottery-like stocks in an emerging market
Muhammad Usman Khurram
Fahad Ali
Yuexiang Jiang
Wenwu Xie
Sažetak
This study investigates the presence of the MAX effect – stocks
with extreme daily (positive) return in the current month perform
poorly in the following month – in the Pakistani stock market
(PSX). Similar to the US, Europe, and Chinese stock markets, we
find a negative effect of MAX on risk-adjusted returns.
Furthermore, we find that the MAX effect persists even if we
extend the holding period to three- and six-month. Our results
are robust for both portfolio-level and firm-level cross-sectional
analyses and across subperiods, size groups, and alternative factor
definitions and models. Interestingly, contrary to findings reported
elsewhere, we find that the MAX effect in Pakistan exists only
when the overall economy is in an expansion state. A battery of
tests suggests that triviality in MAX effect during economic contraction in Pakistan is driven by the more negative subsequent
performance of low-MAX stocks (short-leg), whereas, in other markets, more negative subsequent performance of high-MAX stocks
(long-leg) is evident during economic downturns. Our potential
explanation is partially supported by the theoretical model of
Palfrey & Wang, who find that demand for speculative stocks (i.e.
lottery-like stocks) is higher during ‘good’ economic news (expansion) than ‘bad’ economic news (contraction).
Ključne riječi
MAX effect; lottery-like stocks; speculative assets; Pakistani stock market; Economic condition; emerging markets
Hrčak ID:
302045
URI
Datum izdavanja:
31.3.2023.
Posjeta: 401 *