Do extreme returns matter in emerging markets? Evidence from the Chinese stock market

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• 作者：Gilbert V. Nartea^a ; ^{gilbert.nartea@waikato.ac.nz} ; Dongmin Kong^b ; ^{kongdm@mail.hust.edu.cn} ; Ji Wu^c ; ^{georgejiwu@hotmail.com}
• 关键词：Cross-section of stock returns ; Extreme returns ; Predictability ; China
• 刊名：Journal of Banking & Finance
• 出版年：2017
• 出版时间：March 2017
• 年：2017
• 卷：76
• 期：Complete
• 页码：189-197
• 全文大小：437 K
• 卷排序：76

文摘

Recent evidence in the U.S. and Europe indicates that stocks with high maximum daily returns in the previous month, perform poorly in the current month. We investigate the presence of a similar effect in the emerging Chinese stock markets with portfolio-level analysis and firm-level Fama–MacBeth cross-sectional regressions. We find evidence of a MAX effect similar to the U.S. and European markets. However, contrary to U.S. and European evidence, the MAX effect in China does not weaken much less reverse the anomalous idiosyncratic volatility (IV) effect. Both the MAX and IV effects appear to independently coexist in the Chinese stock markets. Interpreted together with the strong evidence of risk-seeking behaviour among Chinese investors, our results partially support the suggestion that the negative MAX effect is driven by investor preference for stocks with lottery-like features.