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Nominal Stock Price Anchors: A Global Phenomenon?

Author

Listed:
  • Kee-Hong Bae

    (Schulich School of Business, York University, North York, Ontario, Canada, M3J 1P3)

  • Utpal Bhattacharya

    (Institute for Emerging Market Studies, Hong Kong University of Science and Technology)

  • Jisok Kang

    (Cambridge Endowment for Research in Finance, Judge Business School, University of Cambridge, Cambridge, United Kingdom, CB2 1AG)

  • S. Ghon Rhee

    (Financial Economics and Institutions Department, University of Hawaii at Manoa, Shidler College of Business, Honolulu, HI 96822, USA)

Abstract

Weld, Michaely, Thaler, and Benartzi (2009) find that the average nominal U.S. stock price has been approximately $25 since the Great Depression. They report that this "nominal price fixation is primarily a U.S. or North American phenomenon." Using a larger data set from 38 countries, we show that this nominal price fixation is a global phenomenon. We exploit the introduction of the Euro in 1999 to show that stock splits maintain these nominal stock price anchors. Generally, firms in countries with larger drops in nominal prices had fewer stock splits after stock prices are displayed in Euros.

Suggested Citation

  • Kee-Hong Bae & Utpal Bhattacharya & Jisok Kang & S. Ghon Rhee, 2019. "Nominal Stock Price Anchors: A Global Phenomenon?," HKUST IEMS Working Paper Series 2019-64, HKUST Institute for Emerging Market Studies, revised May 2019.
    • Handle: RePEc:hku:wpaper:201964
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    References listed on IDEAS

    as
    1. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 2006. "What Works in Securities Laws?," Journal of Finance, American Finance Association, vol. 61(1), pages 1-32, February.
    2. Edward A. Dyl, 2006. "The Share Price Puzzle," The Journal of Business, University of Chicago Press, vol. 79(4), pages 2045-2066, July.
    3. William C. Weld & Roni Michaely & Richard H. Thaler & Shlomo Benartzi, 2009. "The Nominal Share Price Puzzle," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 121-142, Spring.
    4. Merton, Robert C, 1987. "A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    5. Mr. Michael Mussa & Mr. Robert P Flood, 1994. "Issues Concerning Nominal Anchors for Monetary Policy," IMF Working Papers 1994/061, International Monetary Fund.
    6. Baker, Malcolm & Pan, Xin & Wurgler, Jeffrey, 2012. "The effect of reference point prices on mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 106(1), pages 49-71.
    7. Arbel, Yuval & Ben-Shahar, Danny & Gabriel, Stuart, 2014. "Anchoring and housing choice: Results of a natural policy experiment," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 68-83.
    8. Sebastian Edwards, 1992. "Exchange Rates as Nominal Anchors," NBER Working Papers 4246, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Borsboom, Charlotte & Füllbrunn, Sascha, 2021. "Stock Price Level Effect," MPRA Paper 109286, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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