The Robust "Maximum Daily Return Effect as Demand for Lottery" and "Idiosyncratic Volatility Puzzle"

Jared Egginton, Jungshik Hur

Research output: Contribution to journalArticlepeer-review

15 Scopus citations

Abstract

<p> <p id="x-x-x-x-d1e6721"> We form indexes of overpriced and underpriced stocks by ranking stocks based on the disposition effect and anchoring bias. We document the negative relation between maximum daily return and future returns (MAX effect) is confined to overpriced stocks which make up about half the entire sample. We find that the average cross-sectional correlation between maximum daily return and idiosyncratic volatility is nearly 90%. Consistent with prior studies the idiosyncratic volatility puzzle disappears after controlling for the MAX effect. However, when using a sample with a $5 price breakpoint and controlling for overpriced stocks the idiosyncratic volatility puzzle and the MAX effect are economically and statistically significant. </p></p>
Original languageAmerican English
Pages (from-to)229-245
Number of pages17
JournalMarketing Faculty Publications and Presentations
Volume47
DOIs
StatePublished - 1 Jun 2018

Keywords

  • anchoring bias
  • disposition effect
  • idiosyncratic volatility puzzle
  • maximum daily return

EGS Disciplines

  • Finance and Financial Management
  • Marketing

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