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The Share Price Puzzle

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  • Edward A. Dyl

    (University of Arizona)

Abstract

We document substantial variation in the prices of common stocks in U.S. markets due to firms selecting particular price ranges for their shares. Cross-sectional evidence indicates that variables consistent with Merton's model of capital market equilibrium explain roughly two-thirds of this variation in share prices. In addition, measures of trading range and share price appreciation predict stock splits, and the "investor base" of firms that split their stock increases compared to other firms. We conclude that firms manage share price levels to increase the value of the firm.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 79 (2006)
Issue (Month): 4 (July)
Pages: 2045-2066

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Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:4:p:2045-2066

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Web page: http://www.journals.uchicago.edu/JB/

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Cited by:
  1. Green, T. Clifton & Hwang, Byoung-Hyoun, 2009. "Price-based return comovement," Journal of Financial Economics, Elsevier, vol. 93(1), pages 37-50, July.
  2. Fernando, Chitru S. & Gatchev, Vladimir A. & Spindt, Paul A., 2010. "Institutional Ownership, Analyst Following and Share Prices," Working Papers 10-07, University of Pennsylvania, Wharton School, Weiss Center.
  3. Chen, Honghui & Nguyen, Hoang Huy & Singal, Vijay, 2011. "The information content of stock splits," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2454-2467, September.
  4. Bodnaruk, Andriy & Ostberg, Per, 2009. "Does investor recognition predict returns?," Journal of Financial Economics, Elsevier, vol. 91(2), pages 208-226, February.
  5. Lin, Ji-Chai & Singh, Ajai K. & Yu, Wen, 2009. "Stock splits, trading continuity, and the cost of equity capital," Journal of Financial Economics, Elsevier, vol. 93(3), pages 474-489, September.
  6. Fernando, Chitru S. & Gatchev, Vladimir A. & Spindt, Paul A., 2012. "Institutional ownership, analyst following, and share prices," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2175-2189.
  7. Autore, Don M. & Kovacs, Tunde, 2014. "Investor recognition and seasoned equity offers," Journal of Corporate Finance, Elsevier, vol. 25(C), pages 216-233.

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