Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/337278 
Year of Publication: 
2024
Citation: 
[Journal:] Journal of Derivatives and Quantitative Studies: Seonmul yeon'gu (JDQS) [ISSN:] 2713-6647 [Volume:] 32 [Issue:] 2 [Year:] 2024 [Pages:] 159-180
Publisher: 
Emerald, Leeds
Abstract: 
In this study, we investigate what drives the MAX effect in the South Korean stock market. We find that the MAX effect is significant only for overpriced stocks categorized by the composite mispricing index. Our results suggest that investors' demand for the lottery and the arbitrage risk effect of MAX may overlap and negate each other. Furthermore, MAX itself has independent information apart from idiosyncratic volatility (IVOL), which assures that the high positive correlation between IVOL and MAX does not directly cause our empirical findings. Finally, by analyzing the direct trading behavior of investors, our results suggest that investors' buying pressure for lottery-like stocks is concentrated among overpriced stocks.
Subjects: 
Abnormal trading volume
Arbitrage risk
Individual investor
Lottery preference
MAX effect
South Korea
JEL: 
G11
G12
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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