Access the full text.
Sign up today, get DeepDyve free for 14 days.
Loading next page...
/lp/american-economic-association/the-nominal-share-price-puzzle-R521ym8vPA
References
References for this paper are not available at this time. We will be adding them shortly, thank you for your patience.
- Publisher
- American Economic Association
- Copyright
- Copyright © 2009 by the American Economic Association
- Subject
- Articles
- ISSN
- 0895-3309
- DOI
- 10.1257/jep.23.2.121
- Publisher site
- See Article on Publisher Site
Abstract
Abstract The average nominal share prices of common stocks traded on the New York Stock Exchange have remained constant at approximately $35 per share since the Great Depression as a result of stock splits. It is surprising that U.S. firms actively maintained constant nominal prices for their shares while general prices in the economy went up more than tenfold. This is especially puzzling given that commissions paid by investors on trading ten $35 shares are about ten times those paid on a single $350 share. We review potential explanations including signaling and optimal trading ranges and find that none of the existing theories are able to explain the observed constant nominal prices. We suggest that the evidence is consistent with the idea that customs and norms can explain the nominal price puzzle.
Journal
Journal of Economic Perspectives – American Economic Association
Published: May 1, 2009