When is a MAX not the MAX? How news resolves information uncertainty

Tao, R., Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153 and Bell, A. R. ORCID: https://orcid.org/0000-0003-4531-0072 (2020) When is a MAX not the MAX? How news resolves information uncertainty. Journal of Empirical Finance, 57. pp. 33-51. ISSN 0927-5398 doi: 10.1016/j.jempfin.2020.03.002

Abstract/Summary

A well-known asset pricing anomaly, the “MAX” effect, measured by the maximum daily return in the past month, depicts stocks’ lottery-like features and investor gambling behaviour. Using the comprehensive stock-level Dow Jones (DJNS) news database between 1979 and 2016, we consider in a empirical setting how the presence of news reports affects these lottery-type stocks. We find an augmented negative relationship between MAX stocks without news and expected returns, whereby MAX with news coverage generates return momentum. The differing future return relationships between MAX stocks with and without news appears to be best explained by information uncertainty mitigation upon news arrival. Overall, our findings suggest that news plays a role in resolving information uncertainty in the stock market.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/89795
Identification Number/DOI	10.1016/j.jempfin.2020.03.002
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
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