Preferences for maximum daily returns
Baars, Maren; Mohrschladt, Hannes
Zusammenfassung
Previous research shows that individual investors are attracted to stocks with high maximum daily returns in the previous month (MAX). We examine the underlying sources of this preference. In a discrete choice investment experiment, subjects prefer high-MAX stocks only if these stocks are speculative with a comparably high level of return volatility. However, after controlling for volatility, subjects no longer favor high-MAX stocks. Hence, individuals do not prefer higher maximum daily returns per se. We find additional support for these findings in the aggregate trading patterns of Robinhood retail investors.
Schlüsselwörter
MAX preferences; MAX effect; choice experiment; retail investors