000			03795cam a22004097 4500
001			w25751
003			NBER
005			20211020104206.0
006			m o d
007			cr cnu||||||||
008			210910s2019 mau fo 000 0 eng d
100	1		_aShue, Kelly. _933198
245	1	0	_aCan the Market Multiply and Divide? Non-Proportional Thinking in Financial Markets / _cKelly Shue, Richard R. Townsend.
260			_aCambridge, Mass. _bNational Bureau of Economic Research _c2019.
300			_a1 online resource: _billustrations (black and white);
490	1		_aNBER working paper series _vno. w25751
500			_aApril 2019.
520	3		_aNominal stock prices are arbitrary. Therefore, when evaluating how a piece of news should affect the price of a stock, rational investors should think in percentage rather than dollar terms. However, dollar price changes are ubiquitously reported and discussed. This may both cause and reflect a tendency of investors to think about the impact of news in dollar terms, leading to more extreme return responses to news for lower-priced stocks. We find a number of results consistent with such non-proportional thinking. First, lower-priced stocks have higher total volatility, idiosyncratic volatility, and market betas, after controlling flexibly for size. To identify a causal effect of price, we show that volatility increases sharply following pre-announced stock splits and drops following reverse stock splits. The returns of lower-priced stocks also respond more strongly to firm-specific news events, all else equal. The economic magnitudes are large: a doubling in a stock's nominal price is associated with a 20-30% decline in its volatility, beta, and return response to firm-specific news. These patterns are not exclusive to small, illiquid stocks; they hold even among the largest stocks. Non-proportional thinking can explain a variety of asset pricing anomalies such as long-run and short-run reversals, as well as the negative relation between past returns and volatility (i.e., the leverage effect). Our analysis also shows that the well-documented negative relation between risk (volatility or beta) and size is actually driven by nominal prices rather than fundamentals.
530			_aHardcopy version available to institutional subscribers
538			_aSystem requirements: Adobe [Acrobat] Reader required for PDF files.
538			_aMode of access: World Wide Web.
588	0		_aPrint version record
690		7	_aD03 - Behavioral Microeconomics: Underlying Principles _2Journal of Economic Literature class.
690		7	_aD9 - Micro-Based Behavioral Economics _2Journal of Economic Literature class.
690		7	_aD91 - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making _2Journal of Economic Literature class.
690		7	_aG02 - Behavioral Finance: Underlying Principles _2Journal of Economic Literature class.
690		7	_aG12 - Asset Pricing • Trading Volume • Bond Interest Rates _2Journal of Economic Literature class.
690		7	_aG14 - Information and Market Efficiency • Event Studies • Insider Trading _2Journal of Economic Literature class.
690		7	_aG4 - Behavioral Finance _2Journal of Economic Literature class.
690		7	_aG41 - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets _2Journal of Economic Literature class.
700	1		_aTownsend, Richard R.
710	2		_aNational Bureau of Economic Research.
830		0	_aWorking Paper Series (National Bureau of Economic Research) _vno. w25751.
856	4	0	_uhttps://www.nber.org/papers/w25751
856			_yAcceso en línea al DOI _uhttp://dx.doi.org/10.3386/w25751
942			_2ddc _cW-PAPER
999			_c322371 _d280933