Do Nominal Prices Affect Retail Investors’ Selling Decisions?

44 Pages Posted: 21 Nov 2022 Last revised: 13 Oct 2023

See all articles by Can Yilanci

Can Yilanci

University of Mannheim - Finance Area

Date Written: November 7, 2022

Abstract

In this study, I examine the selling behavior of retail investors. I find that retail investors are more likely to sell stocks with high prices than to sell stocks with low prices. In particular, I find that a 1% increase in price is associated with a 0.2-0.3% increase in an asset’s probability of being sold and that a doubling in share price leads to an increase of up to 20% in an asset’s probability of being sold. My finding that retail investors’ selling decisions are affected by nominal prices is distinct from the existence of a disposition effect. To establish a causal relation, I use stock splits as exogenous shocks to the nominal share price level. I find that the probability of observing a sale decreases by 37% after a stock split has taken place. My findings are in line with a liquidity-based story, i.e. retail investors tend to sell stocks with high prices in order to minimize transaction costs when they are in need of liquidity.

Keywords: Investor Behavior, Nominal Price, Stock Splits

JEL Classification: G11, G40

Suggested Citation

Yilanci, Can, Do Nominal Prices Affect Retail Investors’ Selling Decisions? (November 7, 2022). Available at SSRN: https://ssrn.com/abstract=4270135 or http://dx.doi.org/10.2139/ssrn.4270135

Can Yilanci (Contact Author)

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany

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