Journal of Banking & Finance Vol. 42 2014
The MAX effect: European evidence
Abstract
The maximum daily return over the previous month (MAX) of Bali et al. (2011) is a strong and significant predictor of future stock returns in non-U.S. equity markets. Once it is controlled for MAX in the cross-section of average returns, the puzzling negative idiosyncratic volatility-return relation disappears. Consistent with the assumption that MAX is the true effect, for which idiosyncratic volatility is just a proxy, we find that MAX can be traced back to firm fundamentals in the manner of idiosyncratic volatility. The negative MAX-return relation is stronger among firms with high cash flow volatility and weaker among firms with high profitability.
- DOI
- 10.1016/j.jbankfin.2014.01.020
- Volume
- 42
- Pages
- 1-10
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib