  By decomposing asset returns into potential maximum gain (PMG) and potential
maximum loss (PML) with price extremes, this study empirically investigated the
relationships between PMG and PML. We found significant asymmetry between PMG
and PML. PML significantly contributed to forecasting PMG but not vice versa.
We further explored the power of this asymmetry for predicting asset returns
and found it could significantly improve asset return predictability in both
in-sample and out-of-sample forecasting. Investors who incorporate this
asymmetry into their investment decisions can get substantial utility gains.
This asymmetry remains significant even when controlling for macroeconomic
variables, technical indicators, market sentiment, and skewness. Moreover, this
asymmetry was found to be quite general across different countries.
