Industry information and the 52-week high effect

•The 52-week high effect cannot be explained by standard risk factors.•Institutional investors suffer less from the anchoring bias.•The effect is driven by investor underreaction to industry information.•An industry strategy outperforms the original 52-week high strategy.

We find that the 52-week high effect (George and Hwang, 2004) cannot be explained by standard risk factors. Instead, it is more consistent with investor underreaction caused by anchoring bias: the presumably more sophisticated institutional investors suffer less from this bias and buy (sell) stocks close to (far from) their 52-week highs. Further, the effect is mainly driven by investor underreaction to industry instead of firm-specific information. The extent of underreaction is more for positive than for negative industry information. The 52-week high strategy works best among stocks with high factor model R-squares and high industry betas (i.e., stocks whose values are more affected by industry factors and less affected by firm-specific information). An industry 52-week high strategy to buy (sell) industries whose total capitalizations are close to (far from) their 52-week highs outperforms an idiosyncratic 52-week high strategy to buy stocks with prices close to their 52-week highs and short stocks in the same industry with prices far from their 52-week highs.