Nominal Price Level and Noise Trading

27 Pages Posted: 23 Mar 2017

See all articles by Shima Amini

Shima Amini

University of Leeds; University of Leeds - Division of Accounting and Finance

Charlie X. Cai

University of Liverpool Management School

Date Written: March 21, 2015

Abstract

Contributing to the debate on the nominal price puzzle, we show that higher stock price level is associated with lower noise trading level which confirms Black’s (1986) conjectures that noise traders prefer low-priced stocks to high-priced stocks. The result is robust after controlling for institutional ownership, analyst coverage and company size. Given that noise trading level affects liquidity and cost of capital, this finding demonstrates the economic relevance of price level decision.

Keywords: Nominal Price Puzzle, Noise Trading, Institutional Ownership, Analyst Coverage

JEL Classification: G02, G10, G12

Suggested Citation

Amini, Shima and Cai, Charlie Xiaowu, Nominal Price Level and Noise Trading (March 21, 2015). Leeds University Business School Working Paper No. 17-08. Available at SSRN: https://ssrn.com/abstract=2938417 or http://dx.doi.org/10.2139/ssrn.2938417

Shima Amini (Contact Author)

University of Leeds ( email )

Leeds, LS2 9JT
United Kingdom

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom

Charlie Xiaowu Cai

University of Liverpool Management School ( email )

University of Liverpool
Liverpool, L69 7ZA
United Kingdom

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