Can microstructure noise explain the MAX effect?

Bali et al. (2011) first find and investigate the MAX effect using raw returns (calculated by recorded closing prices), which include microstructure noise from bid-ask measurement errors. Motivated by this, we use noise-adjusted returns (which remove bid-ask errors) to examine the MAX effect and find microstructure noise is an important source of the effect. Average monthly return and five-factor alpha differences between the highest and lowest MAX stock portfolios are not significant in statistics. Most importantly, the negative five-factor alpha differences have no negative significance both in economics and statistics over equal-weighted portfolios.