Abstract

http://ssrn.com/abstract=891213
 
 

References (26)



 
 

Citations (22)



 


 



The Nominal Price Puzzle


William Charles Weld


University of Wisconsin, Madison School of Business; Cornell University - Samuel Curtis Johnson Graduate School of Management

Shlomo Benartzi


University of California at Los Angeles

Roni Michaely


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)

March 2007

AFA 2007 Chicago Meetings Paper

Abstract:     
Nominal prices of common stocks have remained constant at around $30 per share since the Great Depression as a result of firms splitting their stocks. It is surprising that firms actively maintained constant nominal price for their shares while general prices in the economy went up more than ten fold. This is especially puzzling given that commissions paid by investors on trading ten $30 shares are about ten times those paid on a single $300 share. We estimate, for example, that had share prices of General Electric kept up with inflation, investors in that stock would have saved $100 million in commissions in 2005. We review potential explanations, including signaling and optimal trading range 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 Norms (e.g. Akerlof, 2006) can explain the nominal price puzzle.

Number of Pages in PDF File: 58

Keywords: nominal prices, stock splits, norms

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Date posted: March 16, 2006  

Suggested Citation

Weld, William Charles and Benartzi, Shlomo and Michaely, Roni and Thaler, Richard H., The Nominal Price Puzzle (March 2007). AFA 2007 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=891213 or http://dx.doi.org/10.2139/ssrn.891213

Contact Information

William Charles Weld (Contact Author)
University of Wisconsin, Madison School of Business ( email )
975 University Avenue
Madison, WI 53706
United States
608.268.6188 (Phone)
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
Sage Hall
Ithaca, NY 14853
United States
Shlomo Benartzi
University of California at Los Angeles ( email )
D410 Anderson Complex
Los Angeles, CA 90095-1481
United States
310-206-9939 (Phone)
310-267-2193 (Fax)
Roni Michaely
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
431 Sage Hall
Ithaca, NY 14853
United States
607-255-7209 (Phone)
607-254-4590 (Fax)
HOME PAGE: http://www.johnson.cornell.edu/faculty/profiles/Michaely/
Interdisciplinary Center (IDC)
P.O. Box 167
Herzliya, 46150
Israel
Richard H. Thaler
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-5208 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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References:  26
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