TY  - JOUR
AU  - Bali,Turan G.
AU  - Cakici,Nusret
AU  - Whitelaw,Robert F.
TI  - Maxing Out: Stocks as Lotteries and the Cross-Section of Expected Returns
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14804
PY  - 2009
Y2  - March 2009
UR  - http://www.nber.org/papers/w14804
L1  - http://www.nber.org/papers/w14804.pdf
N1  - Author contact info:
Turan G. Bali
McDonough School of Business
Georgetown University
Between 37th and O Streets 
Washington, D.C. 20057
Tel: (202) 687-5388
Fax: (202) 687-4031
E-Mail: tgb27@georgetown.edu

Nusret Cakici
Graduate School of Business
Fordham University
1790 Broadway
New York, NY 10019
E-Mail: cakici@fordham.edu

Robert F. Whitelaw
New York University
Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY  10012-1126
Tel: 212/998-0338
Fax: 212/995-4233
E-Mail: rwhitela@stern.nyu.edu
AB  - Motivated by existing evidence of a preference among investors for assets with lottery-like payoffs and that many investors are poorly diversified, we investigate the significance of extreme positive returns in the cross-sectional pricing of stocks. Portfolio-level analyses and firm-level cross-sectional regressions indicate a negative and significant relation between the maximum daily return over the past one month (MAX) and expected stock returns. Average raw and risk-adjusted return differences between stocks in the lowest and highest MAX deciles exceed 1% per month. These results are robust to controls for size, book-to-market, momentum, short-term reversals, liquidity, and skewness. Of particular interest, including MAX reverses the puzzling negative relation between returns and idiosyncratic volatility recently documented in Ang et al. (2006, 2008).
ER  -