A well-known asset pricing anomaly, the “MAX” effect, measured by the maximum daily return in the past month, depicts stocks’ lottery-like features and investor gambling behaviour. Using the comprehensive stock-level Dow Jones (DJNS) news database between 1979 and 2016, we consider in a empirical setting how the presence of news reports affects these lottery-type stocks. We find an augmented negative relationship between MAX stocks without news and expected returns, whereby MAX with news coverage generates return momentum. The differing future return relationships between MAX stocks with and without news appears to be best explained by information uncertainty mitigation upon news arrival. Overall, our findings suggest that news plays a role in resolving information uncertainty in the stock market.
|Number of pages||19|
|Journal||Journal of Empirical Finance|
|Early online date||03 Apr 2020|
|Publication status||Published - Jun 2020|
Bibliographical notePublisher Copyright:
Copyright 2020 Elsevier B.V., All rights reserved.
- Information uncertainty
- Investor sentiment
- Lottery-like stocks
- News coverage
- Stock return predictability
ASJC Scopus subject areas
- Economics and Econometrics