Preferences for maximum daily returns
Abstract
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.
Keywords
MAX preferences; MAX effect; choice experiment; retail investors
Cite as
Baars, M., & Mohrschladt, H. (2024). Preferences for maximum daily returns. Journal of Economic Behavior and Organization, 220, 343–353.Details
Publication type
Research article (journal)
Peer reviewed
Yes
Publication status
Published
Year
2024
Journal
Journal of Economic Behavior and Organization
Volume
220
Start page
343
End page
353
Language
English
ISSN
0167-2681
DOI