Do Individual Investors Prefer a Price Range in the Equity Markets?

Abstract

This article focuses on a wealth-constrained individual investor preference for lower price ranges in the Indian secondary equity market, using stock-split data to gauge the effects of lower price ranges on individual ownership. The hypothesis is that individual investors operate within a price range of choice. The overall findings address three specific contributions. First, the impact of various post-split price (PSP) bands on both individual and institutional investors is assessed. Second, a specific PSP range is estimated that triggers a shift in ownership from institutional investors to individual investors. Third, the article shows the firm-specific characteristics for companies that target lower-priced stocks.

TOPICS: Security analysis and valuation, fundamental equity analysis, emerging markets

Key Findings

• ▪ The lowest bands of post split price (PSP) have maximum positive impact on ownership of individual shareholders.

• ▪ The lowest bands of post split price have maximum negative impact on ownership of institutional shareholders.

• ▪ The Shift in ownership from institutional investors to individual investors happens at the lowest bands of Post split price (PSP).

• ▪ Companies having lower price-to-book ratios and higher market capitalization target lower market prices (PSP) to attract individual shareholders post split.