Nominal Share Price Puzzle

Weld, William Charles; Michaely, Roni; Thaler, Richard H.; Benartzi, Shlomo

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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

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: 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