Does Max Matter for Mutual Funds?

30 Pages Posted: 19 May 2020

Multiple version iconThere are 2 versions of this paper

Date Written: September 2019


Extreme returns (MAX) have been shown to impact future expected stock returns. We examine whether this relationship is present in mutual fund returns. We find that high MAX funds, as measured by past extreme daily returns, underperform both in portfolio sorts and cross‐sectional tests. We further test possible explanations for why MAX funds underperform. First, we measure mutual fund flows to determine investor response to MAX. Second, we examine the underlying holdings of MAX funds to measure their concentration in MAX stocks. We find evidence that both fund flows and holdings contribute to the MAX effect on mutual fund returns.

Keywords: lottery preferences, MAX, mutual fund flows and performance, skewness

Suggested Citation

Goldie, Bradley A. and Henry, Tyler R. and Kassa, Haim, Does Max Matter for Mutual Funds? (September 2019). European Financial Management, Vol. 25, Issue 4, pp. 777-806, 2019, Available at SSRN: or

Bradley A. Goldie (Contact Author)

Miami University ( email )

2029 Farmer School of Business
800 E. High Street
Oxford, OH 45056
United States
(513) 529-3657 (Phone)
(513) 529-6992 (Fax)

Tyler R. Henry

Miami University ( email )

Oxford, OH 45056
United States

Haim Kassa

Miami University ( email )

800 E. Main St
The Farmer School of Business
Oxford, OH 45056
United States
(513) 529-2057 (Phone)
(513) 556-4891 (Fax)


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