Lottery mindset,mispricing and idiosyncratic volatility puzzle: Evidence from the Chinese stock market |
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| Institution: | 1. Newcastle Business School, University of Newcastle, Newcastle, NSW 2300, Australia;2. Department of Banking and Finance, Monash University, Caulfield, Victoria 3145, Australia;1. The Chinese University of Hong Kong, Hong Kong;2. Rotman School of Management at the University of Toronto, Canada; Southwestern University of Finance and Economics, China |
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| Abstract: | This study investigates the MAX effect regarding lottery mindset in the Chinese stock market. The MAX effect significantly affects stock returns through quintile portfolio and cross-sectional regression analyses. The most-overpriced stock groups, as categorized by mispricing index, show more support for the MAX effect. However, the idiosyncratic volatility (IVOL) effect continues regardless of consideration for the MAX effect, indicating that the MAX effect is not a source of the IVOL effect. Our results suggest that the MAX effect, which is highly relevant for overpriced stocks, might have information for determining stock price, and appears to be independent from information of the IVOL effect in the Chinese stock market. |
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| Keywords: | MAX effect Lottery mindset Mispricing Idiosyncratic volatility Emerging stock market G11 G17 G12 |
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