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How Much Does Nominal Share Price Matter?

Author

Listed:
  • Hongwei Chuang

    (IUJ 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.

Suggested Citation

  • Hongwei Chuang, 2021. "How Much Does Nominal Share Price Matter?," Working Papers EMS_2021_01, Research Institute, International University of Japan.
    • Handle: RePEc:iuj:wpaper:ems_2021_01
    as

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    File URL: https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2021_01.pdf
    File Function: First version, 2021
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Price Risk; Momentum Crash; Stock Split/Dividend;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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