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The Effect of Nominal Price on Stock Returns in Tehran Stock Exchange

Mohammadi Sepahvand, Alireza | 2020

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 52637 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Ebrahimnejad, Ali; Barakchian, Mahdi; Keshavarz Haddad, Gholamreza
  7. Abstract:
  8. Based on modern finance theory, valuation should not depend on nominal stock prices. However, evidence shows that the nominal price of stocks does matter in the U.S. stock market. In this paper, we examine the effect of nominal share prices on stock returns, using data between 2009 and 2017 form the Tehran Stock Exchange. Our results indicate that there is no significant relationship between nominal price and return on the Tehran Stock Exchange. By controlling for different important variables, the return differential between high price and low price stocks is insignificant and the results are robust to various specifications and tests. Furthermore, by using event study under the market model, similar results are obtained around stock split. The difference of abnormal return in different windows around the stock split is not significantly different from zero and the Tehran Stock Exchange shows no reaction to stock split between 2009 and 2017. Moreover, if the investors decide based on the stocks’ nominal price, then shares with similar prices would be in the portfolio of the same investors. As a result, stocks that undergo splits would be expected to experience an increase in comovement with low-priced stocks which is not explained by economic fundamentals, firm size, or changes in liquidity or information diffusion. However, the results here suggest that there is no shift in comovement following splits
  9. Keywords:
  10. Event Study ; Behavioral Finance ; Tehran Stock Exchange ; Co-Movement ; Cumulative Abnormal Return ; Nominal Price ; Stock Split

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