Maxing Out in China: Optimism or Attention?
International Review of Finance, Forthcoming
Posted: 17 May 2018
Date Written: May 11, 2018
Bali, Cakici, and Whitelaw (2011) document a MAX premium in the U.S. where stocks with the highest maximum daily returns (MAX) underperform stocks with the lowest MAX in the subsequent month. However, the source of this MAX premium is contentious. Fong and Toh (2014) find that the MAX premium exclusively follows high sentiment periods suggesting that it is driven by investor optimism during high sentiment periods. In contrast Cheon and Lee (2017) find that the MAX premium is stronger following low sentiment periods suggesting that it is driven by the attention-grabbing characteristic of high MAX stocks in low sentiment periods. We present evidence from China consistent with the MAX premium being driven by investor optimism during high sentiment periods.
Keywords: MAX Premium, China, Attention-Grabbing, Investor Optimism
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation