Nominal Share Price Puzzle
William Charles Weld
University of Wisconsin, Madison School of Business; Cornell University - Samuel Curtis Johnson Graduate School of Management
Cornell University - Samuel Curtis Johnson Graduate School of Management; Interdisciplinary Center (IDC)
Richard H. Thaler
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
University of California at Los Angeles
Journal of Economic Perspectives, Vol. 23, No. 2, pp. 121-42, Spring 2009
The average nominal share prices of common stocks traded on the New York Stock Exchange have remained constant at approximately $35 per share since the Great Depression as a result of stock splits. It is surprising that U.S. firms actively maintained constant nominal prices for their shares while general prices in the economy went up more than tenfold. This is especially puzzling given that commissions paid by investors on trading ten $35 shares are about ten times those paid on a single $350 share. We review potential explanations including signaling and optimal trading ranges and find that none of the existing theories are able to explain the observed constant nominal prices. We suggest that the evidence is consistent with the idea that customs and norms can explain the nominal price puzzle.
Keywords: nominal prices, stock splits, norms
JEL Classification: G14, G30, N22Accepted Paper Series
Date posted: April 27, 2010
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo3 in 0.437 seconds