Preferences for maximum daily returns: Evidence from a discrete choice experiment

24 Pages Posted: 14 Dec 2021

See all articles by Maren Baars

Maren Baars

University of Muenster - Finance Center

Hannes Mohrschladt

University of Muenster - Finance Center

Date Written: December 7, 2021

Abstract

It is commonly assumed that individual investors are attracted to stocks with high maximum daily returns (MAX) because they overweight low probabilities for large gains. This paper presents results from a discrete choice experiment that does not support a general preference for high-MAX stocks. When choosing between two stocks based on historical real-world returns, subjects systematically prefer low-MAX stocks although alternatives are matched in terms of risk-return-characteristics and return ordering. These experimental findings call for alternative explanations for the MAX effect beyond individuals' lottery preferences.

Keywords: MAX effect, choice experiment

JEL Classification: C91, D91, G40

Suggested Citation

Baars, Maren and Mohrschladt, Hannes, Preferences for maximum daily returns: Evidence from a discrete choice experiment (December 7, 2021). Available at SSRN: https://ssrn.com/abstract=3979605 or http://dx.doi.org/10.2139/ssrn.3979605

Maren Baars

University of Muenster - Finance Center ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

Hannes Mohrschladt (Contact Author)

University of Muenster - Finance Center ( email )

Universitätsstr. 14-16
Muenster, 48143
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/fcm/en/the-fcm/lsf/team/hannes-mohrschladt

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