Bali et al. (2011) demonstrate the MAX effect, which is the anomaly that stocks with high maximum daily returns (MAX) over the past month perform poorly relative to the low MAX stocks. In this paper, we show that the MAX effect is strongly dependent on investor sentiment; only significant during the low sentiment states in the Korean stock market. MAX effect is prevalent only following low investor sentiment states, high unemployment rate status, and low consumer sentiment states. The circumstance that MAX effect is only prevalent in low sentiment states could not be explained by the investors’ optimism. In fact, this could be explained by individual investors’ tendency to buy lotterytype stocks when economic conditions are poor following Kumar (2009). Actually, individual investors’ buying pressure around high MAX stocks are significantly larger than that around low MAX stocks. Our findings explain the MAX effect is only significant during low sentiment or economic downturn in the Korean stock market, consistent with Kumar (2009), in line with the philosophy of behavioral finance.