How Much Does Nominal Share Price Matter?

Hongwei Chuang ()
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Hongwei Chuang: IUJ Research Institute, International University of Japan

No EMS_2021_01, Working Papers from Research Institute, International University of Japan

Abstract: The paper examines the relation between nominal share price and price momentum, explicitly controlling for nominal share price levels. The results show that very high/low nominal share price stocks lack price momentum and utilize more systemic risk which remains even controlling for stock splits. While splitting a stock allows firm managers to keep the nominal share price constant, thereby increasing firm value and attracting more investors, it also increases the likelihood of uninformed trading by those with limited budgets and risk share capacity. As a result, splitting a stock causes stock information to diffuse more slowly, leading to higher price momentum.

Keywords: Price Risk; Momentum Crash; Stock Split/Dividend (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2021-02
New Economics Papers: this item is included in nep-fmk
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