DOES THE PRICE MULTIPLIER EFFECT ALSO HOLD FOR STOCKS?

Sergei Maslov () and Bertrand M. Roehner ()
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Sergei Maslov: Department of Physics, Brookhaven National Laboratory, Upton, New York 11973, USA
Bertrand M. Roehner: Institute for Theoretical and High Energy Physics, University of Paris, France

International Journal of Modern Physics C (IJMPC), 2003, vol. 14, issue 10, 1439-1451

Abstract: The price multiplier effect provides precious insight into the behavior of investors during episodes of speculative trading. It tells us that the higher the price of an asset (within a set of similar assets), the more its price is likely to increase during the upgoing phase of a speculative price peak. In short, instead of being risk averse, as is often assumed, investors rather seem to be "risk prone". While this effect is known to hold for several sorts of assets, it has not yet been possible to test it for stocks because the price of one share has no intrinsic significance, which means that one cannot say that stockAis more expensive than stockBon the basis of its price. In this paper we show that the price-dividend ratio gives a good basis for assessing the price of stocks in an intrinsic way. When this alternative measure is used instead, it turns out that the price multiplier effect also holds for stocks, at least if one concentrates on samples of companies which are sufficiently homogeneous.

Keywords: Stock prices; speculation; real estate; price-dividend ratio (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1142/S0129183103005510

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