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ETF MAX and MIN effects

Author

Listed:
  • Gould, John
  • Sun, Zhiyue
  • Yang, Joey W.

Abstract

In a sample of monthly ETFs from 2006 to 2022, we find evidence of return underreaction for extreme single-day low return (strong-MIN) events for ETFs as indicated by ongoing return underperformance in the subsequent month. This “MIN effect” result is consistent with: (i) ETF investors being hesitant to sell due to the disposition effect or being willing to buy due to anchoring bias and the illusion of a “cheap” market price during and following a strong-MIN event; and (ii) subsequent momentum drift driven by authorized participant arbitrage. We do not find robust evidence that strong-MAX events for ETFs are associated with predictable return performance in the subsequent month.

Suggested Citation

  • Gould, John & Sun, Zhiyue & Yang, Joey W., 2024. "ETF MAX and MIN effects," Finance Research Letters, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:finlet:v:60:y:2024:i:c:s1544612323012072
    DOI: 10.1016/j.frl.2023.104835
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    More about this item

    Keywords

    ETF mispricing; MIN effect; MAX effect;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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