Maxing Out in China: Optimism or Attention?

Bali, Cakici, and Whitelaw (2011) document a MAX premium in the U.S. where stocks with the highest maximum daily returns (MAX) underperform stocks with the lowest MAX in the subsequent month. However, the source of this MAX premium is contentious. Fong and Toh (2014) find that the MAX premium exclusively follows high sentiment periods suggesting that it is driven by investor optimism during high sentiment periods. In contrast Cheon and Lee (2017) find that the MAX premium is stronger following low sentiment periods suggesting that it is driven by the attention-grabbing characteristic of high MAX stocks in low sentiment periods. We present evidence from China consistent with the MAX premium being driven by investor optimism during high sentiment periods.

Keywords: MAX premium, China, attention-grabbing, investor optimism

JEL Classification: G11, G12, G14

Suggested Citation: Suggested Citation

Cheema, Muhammad A. and Nartea, Gilbert and Man, Yimei, Maxing Out in China: Optimism or Attention? (March 18, 2018). Available at SSRN: https://ssrn.com/abstract=3118809 or http://dx.doi.org/10.2139/ssrn.3118809