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Abstract

Psychology and Psychotherapy: Research Study

The MAX Anomaly Under Psychological Barriers: Evidence from the Chinese Stock Market

  • Open or CloseShuai Qiao*

    Dalian University of Technology, China

    *Corresponding author:Shuai Qiao, Dalian University of Technology, No.2 Linggong Road, Ganjingzi District, Dalian City, Liaoning Province, PRC, China

Submission: October 10, 2024;Published: November 14, 2024

DOI: 10.31031/SIAM.2024.05.000608

ISSN 2639-0612
Volume5 Issue2

Abstract

This paper examines the MAX anomaly, focusing on two key issues: (1) Whether MAX stocks, as lotterylike securities, can hedge against market volatility; and (2) How the 52-week high price, serving as a psychological barrier, influences investors’ gambling preferences. Our findings reveal that high-MAX stocks in the Chinese market fail to hedge market risk, suggesting that the MAX anomaly in China stems purely from gambling preferences. Furthermore, consistent with the psychological barrier hypothesis, we find that the MAX premium is negatively correlated with a stock’s proximity to its 52-week high. These results indicate that investors view the 52-week high as an upper price limit, and this psychological barrier significantly impacts their preference for lottery-like stocks.

JEL classification:G10 G11.

Keywords:MAX anomaly; Market volatility; Psychological barriers; 52-week high

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