w % does not provide for the extraction of any information from absolute share price level, the idea persists in the minds of many investors that $20 worth of equity divided into 10 shares of $2 each is somehow different from a single $20 share. Therefore, this study explores the relationship among several factors of interest to investors in common stocks: the annual trading range of the security, absolute share price level, a qualitative risk factor, and stock split activity. Those who hold preconceived ideas about the merits of inexpensive shares are polarized. Graham and Dodd ([lo], page 649), for instance, state, ”It is a commonplace of the market that an issue will rise more steadly from 10 to 40 than from 100 to 400.” Edmister and Greene ([5], page 40) conclude, ”risk-adjusted performance is superior for the low-price (<$lo) and super-low-price stock (<$3).” Other work ([l], [4], [ll]) holds that, ceteris paribus, these beliefs are inaccurate and that low-priced securities tend to move through wider relative price ranges because lowpriced stocks are more “risky” than higher priced securities. In a similar vein, some investors and security analysts continue to be resolute in their conviction that stock splits are a favorable occurrence rather than a neutral event. The next section of this study examines the relationship between stock price and annual trading range. We then look at price and risk class, and conclude with a discussion of the results and a summary.

Do share price and stock splits matter

W ITH THE ADVENT of fiscal policy which taxes dividend income progressively more than capital gains income, the attention of many investors has quite logically been focused upon securities which offer possibilities for capital gains.' Growth stocks have taken on a special glamour and come into vogue with the field of security analysts. Today it is virtually impossible to pick up a current issue of the Analysts Journal without coming across at least one article on the subject. It would seem that the average investor in quest of capital gains is neither cognizant of the fact that the ability of investment houses to pick growth stocks is in doubt, nor aware that recognized growth stocks may be so over-priced in terms of current earnings that it is "speculative" indeed to expect their future price inflation to be greater than the price inflation of representative industrial averages.

E.F. Renshaw

Papers

A Note on Behavior in the Stock Market