Stock Price Level Effect

Charlotte Borsboom and Sascha Füllbrunn ()

MPRA Paper from University Library of Munich, Germany

Abstract: Companies actively manipulate stock price ranges through IPOs, stock splits, and repurchases. Indeed, empirical results suggest that the stock's price range, whether at a high or low price level, affects market performance. Unfortunately, archival data does not allow us to test the effect of stock price levels on investor behavior due to uncontrolled confound effects. We thus conduct a controlled online experiment with 900 US retail investors to test whether a difference in stock price levels affects the investor's risk perception, the price forecast, and the investment. Even though we �nd no differences in risk perception and forecasts, our results show signi�cantly higher investments in high-priced stocks in comparison to low-priced stocks. This effect disappears when we allow fractional share purchases or restrict naive trading strategies.

Keywords: stock price; nominal stock price puzzle; stock splits; number processing; fractional share purchases; naive trading strategies; numerosity (search for similar items in EconPapers)
JEL-codes: C90 D14 G11 (search for similar items in EconPapers)
Date: 2021-08-18
New Economics Papers: this item is included in nep-cwa, nep-exp, nep-fmk, nep-isf and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:109286

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