Positive IVOL-MAX effect: A study on the Singapore Stock Market

This study investigates the presence of the MAX effectstocks with extreme daily (positive) return in the current month perform poorly in the following monthin the Pakistani stock market (PSX). Similar to the US, Europe, and Chinese stock markets, we find a negative effect of MAX on risk-adjusted returns. Furthermore, we find that the MAX effect persists even if we extend the holding period to three-and six-month. Our results are robust for both portfolio-level and firm-level cross-sectional analyses and across subperiods, size groups, and alternative factor definitions and models. Interestingly, contrary to findings reported elsewhere, we find that the MAX effect in Pakistan exists only when the overall economy is in an expansion state. A battery of tests suggests that triviality in MAX effect during economic contraction in Pakistan is driven by the more negative subsequent performance of low-MAX stocks (short-leg), whereas, in other markets, more negative subsequent performance of high-MAX stocks (long-leg) is evident during economic downturns. Our potential explanation is partially supported by the theoretical model of Palfrey & Wang, who find that demand for speculative stocks (i.e. lottery-like stocks) is higher during 'good' economic news (expansion) than 'bad' economic news (contraction).

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How fears index and liquidity affect returns of ivol puzzle before and during the Covid-19 pandemic

Duong

Tran

Nguyen

et al. 2022

Cogent Economics & Finance

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Positive IVOL-MAX effect: A study on the Singapore Stock Market

Cited by 3 publications

References 28 publications

The MAX puzzle in a frontier market before and during the Covid-19 pandemic

The MAX puzzle in a frontier market before and during the Covid-19 pandemic

Predictability of extreme daily returns and Preference for lottery-like stocks in an emerging market

How fears index and liquidity affect returns of ivol puzzle before and during the Covid-19 pandemic

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