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Large transactions and the MAX effect: Evidence from China

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  • Bi, Jia
  • Gui, Pingshu
  • Zhu, Yifeng

Abstract

In this paper, we confirm the existence of the maximum daily return (MAX) effect in the Chinese stock market. Furthermore, we find that MAX is driven by large transactions whereby their increasing relative transaction volume triggers the MAX effect. This paper proposes the economic mechanism for the MAX effect as follows: institutional investor trading increases first, which causes individual investors to follow so that the total transaction volume increased, finally the MAX effect formatted. After the daily stock return reaches its monthly highest, the institutional trading quickly decays. By contrast, trading by retail investors decreases much slower after the MAX day.

Suggested Citation

  • Bi, Jia & Gui, Pingshu & Zhu, Yifeng, 2022. "Large transactions and the MAX effect: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:pacfin:v:75:y:2022:i:c:s0927538x22001470
    DOI: 10.1016/j.pacfin.2022.101852
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    More about this item

    Keywords

    The MAX effect; Large transactions; Institutional investors; Retail investors;
    All these keywords.

    JEL classification:

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

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