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This study examines whether firm-specific news and China economic policy uncertainty condition the pricing of maximum daily returns (MAX) in the Chinese stock market from July 2008 to June 2025. The paper is positioned as an institutional extension and out-of-sample validation of the news-MAX mechanism previously documented in the U.S. market. We decompose conventional MAX into news-related and non-news-related components, distinguish between good and bad news, and further examine whether investor sentiment and China economic policy uncertainty (CHEPU) amplify the anomaly. Using portfolio analysis, Fama-MacBeth cross-sectional regressions, and TSLS interaction regressions, we show that the negative pricing of MAX is concentrated in MAXnonews rather than MAXnews. We further find that the effect is strongest in bad-news stocks and becomes more pronounced during periods of high investor sentiment and high CHEPU. These results suggest that the pricing of extreme returns depends not only on whether they are information-backed, but also on broader market states that intensify speculative demand, increase uncertainty, and limit arbitrage. The paper contributes by clarifying the mechanism through which news resolves information uncertainty in MAX stocks and by showing how that mechanism operates in a retail-dominated and policy-sensitive market.
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Hoang et al. (2026) studied this question.
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