It Could Be Overreaction, Not Lottery Seeking, That Is Behind Bali, Cakici and Whitelaw’s Max Effect Available to Purchase

Bali et al. (2011) introduce the MAX effect asset pricing anomaly: high MAX stocks (being stocks with the highest 10% of maximum single-day returns during a month) subsequently underperform. We find that this post-high MAX return underperformance is a general phenomenon that is independent of stocks being identified, ex-ante, as lottery-like. With an event study approach, we also find that the average high MAX event cumulative abnormal return pattern is indicative of overreaction embedded within high MAX returns.