Bali et al. (2011) found that the maximum daily returns have a negative influence on the next month's returns and proposed a new anomaly called the MAX effect

the existence of which has been proved in many countries. Based on the Shanghai A shares data from 2011 to 2018

this paper proves the MAX effect exists in Chinese stock markets and explains the anomaly with the investor attention theory and investor's preference for stocks with lottery-like payoffs. We find that: 1) investors' desire to gamble in stocks with characteristics of high MAX

high idiosyncratic skewness and high idiosyncratic volatility is an important cause of the MAX effect. 2) Since investors' attention to stocks is a prerequisite for trading activities

the MAX anomaly will be aggravated by the increase of investors' attention accompanied by more irrational buying. In high investor sentiment period

the irrational investors are more impulsive when they make trading decisions for they have more positive expectations of future returns. Therefore

the investor attention's influence on MAX anomaly will be more pronounced when investor sentiment is high.