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Preferences for maximum daily returns

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  • Baars, Maren
  • Mohrschladt, Hannes

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.

Suggested Citation

  • Baars, Maren & Mohrschladt, Hannes, 2024. "Preferences for maximum daily returns," Journal of Economic Behavior & Organization, Elsevier, vol. 220(C), pages 343-353.
    • Handle: RePEc:eee:jeborg:v:220:y:2024:i:c:p:343-353
    DOI: 10.1016/j.jebo.2024.02.004
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    References listed on IDEAS

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    More about this item

    Keywords

    MAX preferences; MAX effect; Choice experiment; Retail investors;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G40 - Financial Economics - - Behavioral Finance - - - General

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