Weld, William. 2012. The Nominal Share Price Puzzle. Doctoral Dissertation, Cornell
University.
The average nominal prices
of common stocks traded on the New York Stock Exchange have remained constant
at approximately $30-$40 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 $30 shares are about ten times those paid on a single
$300 share. I 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. I suggest that the evidence is consistent
with the idea that customs and norms can explain the nominal price puzzle.
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