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The MAX Effect in an Oil Exporting Country: The Case of Norway

Author

Listed:
  • Muhammad Kashif

    (Nord University Business School, Nord University, Universitetsaléen 11, 8049 Bodø, Norway)

  • Thomas Leirvik

    (Nord University Business School, Nord University, Universitetsaléen 11, 8049 Bodø, Norway
    School of Business and Economics, UiT The Arctic University of Norway, Breivangveien 23, 9010 Tromsø, Norway
    NTNU Business School, The Norwegian University for Science and Technology, Høgskoleringen 1, 7491 Trondheim, Norway)

Abstract

This paper assesses the effects of investors’ lottery-seeking behavior on expected returns in the Norwegian equity market, a relatively small equity market dominated by the energy industry. We use the MAX factor defined as maximum daily return over the previous month as the proxy of investors’ preference for lottery-like stocks. Despite evidence from recent literature that MAX has a negative relationship with the expected returns in other developed European markets, we find that the relationship is generally insignificant in Norway; however, it becomes more nuanced when we control for the state of the oil market. The dominance of firms related to the oil industry, which have experienced tremendous growth over the last couple of decades, masks the effect to a large extent. Conditional regressions show that the MAX effect is only significant in the Norwegian stock market when the oil market is in the bearish state.

Suggested Citation

  • Muhammad Kashif & Thomas Leirvik, 2022. "The MAX Effect in an Oil Exporting Country: The Case of Norway," JRFM, MDPI, vol. 15(4), pages 1-16, March.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:4:p:154-:d:781878
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    References listed on IDEAS

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