Nominal stock price anchors: A global phenomenon?

Weld et al. (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 fixatio...

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Bibliographic Details
Published in:Journal of financial markets (Amsterdam, Netherlands) Netherlands), 2019-06, Vol.44, p.31-41
Main Authors: Bae, Kee-Hong, Bhattacharya, Utpal, Kang, Jisok, Rhee, S. Ghon
Format: Article
Language:English
Subjects:
Anchoring
Nominal share price
Norms
Reverse stock splits
Stock splits
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Summary:Weld et al. (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 were displayed in euros. •Nominal price fixation is not just a North American phenomenon, but a global phenomenon.•Firms use stock splits, which decrease nominal prices, and reverse stock splits, which increase nominal prices, to maintain nominal anchors.•Firms that dropped more in nominal stock prices had fewer stock splits and had higher reverse stock splits after the introduction of the euro.
ISSN:1386-4181
1878-576X
DOI:10.1016/j.finmar.2018.12.006