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The Journal of Wealth Management

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

Harsimran Sandhu, Kousik Guhathakurta and Pradip Banerjee
The Journal of Wealth Management Summer 2021, jwm.2021.1.132; DOI: https://doi.org/10.3905/jwm.2021.1.132
Harsimran Sandhu
is a doctoral scholar in the Department of Finance and Accounting at Indian Institute of Management (IIM), Indore, India
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Kousik Guhathakurta
is an associate professor in the Department of Finance and Accounting at Indian Institute of Management (IIM), Indore, India
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Pradip Banerjee
is an associate professor in the Department of Finance and Accounting at Indian Institute of Management (IIM), Indore, India
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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.

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The Journal of Wealth Management: 23 (4)
The Journal of Wealth Management
Vol. 23, Issue 4
Spring 2021
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Do Individual Investors Prefer a Price Range in the Equity Markets?
Harsimran Sandhu, Kousik Guhathakurta, Pradip Banerjee
The Journal of Wealth Management Mar 2021, jwm.2021.1.132; DOI: 10.3905/jwm.2021.1.132

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Do Individual Investors Prefer a Price Range in the Equity Markets?
Harsimran Sandhu, Kousik Guhathakurta, Pradip Banerjee
The Journal of Wealth Management Mar 2021, jwm.2021.1.132; DOI: 10.3905/jwm.2021.1.132
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  • Article
    • Abstract
    • POST-SPLIT PRICE IMPACT ON INDIVIDUAL INVESTOR HOLDINGS
    • SAMPLE DATA AND DESCRIPTION
    • METHODOLOGY AND MODEL
    • REGRESSION RESULTS AND DISCUSSION
    • EFFECT OF POST-SPLIT PRICE RANGES ON INSTITUTIONAL INVESTORS
    • CONCLUSIONS
    • APPENDIX A
    • APPENDIX B
    • ENDNOTES
    • REFERENCES
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