Investor sentiment and the MAX effect: evidence from Korea

The role of arbitrage risk in the MAX effect: evidence from the Korean stock market

“…Cheon and Lee (2018b) contribute to the discussion by highlighting that the MAX effect is more pronounced during periods of high volatility [2]. Byun et al . (2023) present evidence of the MAX effect during low sentiment states, supplementing their findings by incorporating trading volume and net-buying imbalance as measures of investor attention.…”

“…The prevalence of retail investors in the South Korean stock market renders it an opportune setting for investigating MAX as a proxy for attributes associated with lottery-like stocks, as highlighted in previous studies (e.g. Nartea et al ., 2014; Kang et al ., 2014; Kang and Sim, 2014; Cheon and Lee, 2018a, b; Byun et al ., 2023). Moreover, the distinctive South Korean financial database provides daily trading volumes for each market participant, categorized as individual, institutional, and foreign investors.…”

“…The additional analysis delves into investor trading behavior to elucidate a potential mechanism behind the significant MAX effect among overpriced stock groups. Drawing on the work of Kumar (2009), Cheon and Lee (2018a, b), and Byun et al . (2023), we examine the role of increased attention and individual investor actions and find the following:…”

“…Finally, we contribute to the extant literature on the South Korean stock market, establishing the presence of the lottery preference and MAX effect (e.g. Kang et al ., 2014; Nartea et al ., 2014; Cheon and Lee, 2018a, b; Byun et al ., 2023). Our study differs from theirs by providing a new perspective of arbitrage risk in explaining the MAX effect in the South Korean stock market.…”

Does investor sentiment create value for asset pricing? An empirical investigation of the KOSPI‐listed firms

“…This backdrop steered ultimately to flourishing of a novel era of finance, namely behavioural finance that has eased explaining the impacts of stakeholders' failure to share logical expectations on markets (Kim & Lee, 2022). Following the emergence of behavioural finance, researchers commenced focusing on investigating the nexus of investor sentiment with stock yields (Baker & Wurgler, 2006, 2007; Berger & Turtle, 2012; Greenwood & Shleifer, 2014; Kim & Lee, 2022), often explaining the stock market anomalies such as impact of investors' irrational optimism (Byun et al, 2022), the value premium, the momentum impact, analyst prediction flaws and so on by investor sentiment (Sun et al, 2021; Wu et al, 2021). However, early empirical evidence consistently linked investor sentiment with speculative bubbles (Smidt, 1968), subjective anticipations (Zweig, 1973), and noise (Black, 1986; De Long et al, 1990).…”