Nominal Share Price Puzzle

Journal of Economic Perspectives, Vol. 23, No. 2, pp. 121-42, Spring 2009

22 Pages Posted: 27 Apr 2010

See all articles by William Charles Weld

William Charles Weld

Kenan-Flagler Business School, UNC Chapel Hill

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Richard H. Thaler

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Shlomo Benartzi

University of California at Los Angeles

Date Written: Spring 2009

Abstract

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, N22

Suggested Citation

Weld, William Charles and Michaely, Roni and Thaler, Richard H. and Benartzi, Shlomo, Nominal Share Price Puzzle (Spring 2009). Journal of Economic Perspectives, Vol. 23, No. 2, pp. 121-42, Spring 2009. Available at SSRN: https://ssrn.com/abstract=1595010

William Charles Weld (Contact Author)

Kenan-Flagler Business School, UNC Chapel Hill ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
9199626889 (Phone)

HOME PAGE: http://www.kenan-flagler.unc.edu/faculty/directory/finance/William-Weld

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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

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)

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