In this research, the individual and net effects of low price, low price/earnings (P/E) ratio, and small size on the risk-adjusted excess returns are investigated for the fourth quarter of 1975 to the fourth quarter of 1985. The entire sample is divided into quintiles, and the resulting portfolios are rebalanced at the end of each quarter. Low price, low P/E ratio, and small value portfolios did experience greater excess returns. By applying the experimental control technique, the net effect of stock price is significant after controlling the size. Similarly, the net effect of the market value is significant after the stock price is controlled. The net effect of the P/E ratio is insignificant after controlling either the stock price or the market value.

Low price, price-earnings ratio, market value, and abnormal stock returns

(1982). The Impact of Accounting Variables on Stock Market Measures of Risk. Accounting and Business Research: Vol. 12, No. 47, pp. 193-205.

The Impact of Accounting Variables on Stock Market Measures of Risk

Frank K. Reilly is Professor of Finance at the University of Illinois at Urbana-Champaign and an Associate Editor of this Journal. Eugene F. Drzycimski is Professor of Finance at the University of Wisconsin-Oshkosh. The authors acknowledge the assistance of David Meyer, Marilyn Pillote, Daniel Lehmann, and Rupinder Sidhu, as well as financial support from the Graduate College, University of Illinois.

Short-Run Profits from Stock Splits

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

In this paper we investigate the characteristics of the low price anomaly, which implies higher returns to stocks with a low nominal price. The research aims to broaden academic knowledge in a few ways. Firstly, we deliver some fresh evidence on the low price effect from the Polish market. Secondly, we analyze the interdependence between the low price effect and other return factors: value, size and liquidity. Thirdly, we investigate whether the low price effect is present after accounting for liquidity. Fourthly, we check to see whether the low price effect is robust to transaction costs. The paper is composed of three main sections. In the beginning, we review the existing literature. Next, we present the data sources and research methods employed. Finally, we discuss our research findings. Our computations are based on all the stocks listed on the Warsaw Stock Exchange (WSE) in the years 2003-2013. We have concluded that the low price effect is present on the Polish market, although the statistical significance is very weak and it disappears entirely after accounting for transaction costs and liquidity.

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The Low Price Effect on the Polish Market

In their classic guide for security analysis, Graham and Dodd warn that stocks with a very low price per share are more risky than stocks that sell at higher prices [6, p. 649]. The earliest empirical finding on the relationship of risk and share price was consistent with their warning [5]. Subsequent work has suggested that the warning and the early empirical work may be misleading and that there is no relationship between risk and share price. Strangely enough, both those who warn of a relationship and those who claim there is none may be correct. If a company experiences an unexpected change in its circumstances that substantially increases the systematic risk of its common stock, then, accepting the Capital Asset Pricing Model, the price of its shares will fall. If the change substantially reduces systematic risk, then share price will rise. The observed result for a group of different companies with different changes could be just what Graham and Dodd suspected: lower share price associated with higher risk. If, in contrast, some managements searching for the optimal price range lower share price by splits, then risk should not differ between stocks with low and with high share prices. In this study we have considered combined timeseries and cross-sectional data for two groups of stocks: a non-split group and a split group. Our hypothesis is that only the non-split group will show a negative relationship between share price and risk when risk is properly defined as systematic. The findings are consistent with our hypothesis.

Sasson Bar

Papers

Share Price Levels and Beta