Limited attention, salient anchor, and the modified MAX effect: Evidence from Taiwan’s stock market

• Published in: The North American journal of economics and finance Vol. 67; p. 101904
• Main Authors: Wang, Zi-Mei, Lien, Donald
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 01.07.2023
• Subjects: 52-week high; Anchoring bias; Investor attention; Modified MAX effect; Recency bias; G11; Recency bias; Modified MAX effect; G12; Anchoring bias; G14; Investor attention; 52-week high
• ISSN: 1062-9408; 1879-0860
• DOI: 10.1016/j.najef.2023.101904

•The lottery anomaly primarily exists among stocks further away from their 52-week high prices.•The perception of the 52-week high price as a price ceiling influences skewness preference.•Investor attention is the main determinant of whether anchoring bias affects skewness preference. The literature documents that investors overweighing the right-tail probability pursue positively skewed assets, leading to lottery-like stocks overpriced. We find that the lottery anomaly primarily exists among stocks further away from their 52-week high prices. After attention-grabbing events with gambling features, inattentive retail investors become aware of certain stocks’ gambling traits and then net buy more lottery-like stocks, which further promotes the lottery anomaly. However, when such stocks are near their 52-week high price, retail investors tend to place little weight on the likelihood that the stock price will rise beyond the 52-week high, thereby reducing the skewness preference. Overall, our findings suggest that the perception of the 52-week high price as a price ceiling influences skewness preference, and that investor attention is the main determinant of whether anchoring bias affects skewness preference.