Maxing out : stocks as lotteries and the cross-section of expected returns / Turan G. Bali, Nusret Cakici, Robert F. Whitelaw.
Material type:
TextSeries: Working paper series (National Bureau of Economic Research) ; no. 14804.Publication details: Cambridge, Mass. : National Bureau of Economic Research, 2009Description: 48 p. : ill. ; 22 cmSubject(s): Stocks -- Prices -- Econometric modelsLOC classification: HB1 | .N38 no. 14804Online resources: Click here to access online Summary: Motivated by existing evidence of a preference among investors for assets with lottery-like payoffs and that many investors are poorly diversified, we investigate the significance of extreme positive returns in the cross-sectional pricing of stocks. Portfolio-level analyses and firm-level cross-sectional regressions indicate a negative and significant relation between the maximum daily return over the past one month (MAX) and expected stock returns. Average raw and risk-adjusted return differences between stocks in the lowest and highest MAX deciles exceed 1% per month. These results are robust to controls for size, book-to-market, momentum, short-term reversals, liquidity, and skewness. Of particular interest, including MAX reverses the puzzling negative relation between returns and idiosyncratic volatility recently documented in Ang et al. (2006, 2008)
| Item type | Current library | Collection | Call number | Copy number | Status | Date due | Barcode |
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University of Macedonia Library Βιβλιοστάσιο Β (Stack Room B) | Research Papers | HB1.N38 no. 14804 (Browse shelf (Opens below)) | 1 | Available | 0013125724 |
Includes bibliographical references.
Motivated by existing evidence of a preference among investors for assets with lottery-like payoffs and that many investors are poorly diversified, we investigate the significance of extreme positive returns in the cross-sectional pricing of stocks. Portfolio-level analyses and firm-level cross-sectional regressions indicate a negative and significant relation between the maximum daily return over the past one month (MAX) and expected stock returns. Average raw and risk-adjusted return differences between stocks in the lowest and highest MAX deciles exceed 1% per month. These results are robust to controls for size, book-to-market, momentum, short-term reversals, liquidity, and skewness. Of particular interest, including MAX reverses the puzzling negative relation between returns and idiosyncratic volatility recently documented in Ang et al. (2006, 2008)
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