Does the price multiplier effect also hold for stocks?

Sergei Maslov, Bertrand M. Roehner

Research output: Contribution to journalArticlepeer-review

Abstract

The price multiplier effect provides precious insight into the behavior of investors during episodes of speculative trading. It tells us that the higher the price of an asset (within a set of similar assets), the more its price is likely to increase during the upgoing phase of a speculative price peak. In short, instead of being risk averse, as is often assumed, investors rather seem to be "risk prone". While this effect is known to hold for several sorts of assets, it has not yet been possible to test it for stocks because the price of one share has no intrinsic significance, which means that one cannot say that stock A is more expensive than stock B on the basis of its price. In this paper we show that the price-dividend ratio gives a good basis for assessing the price of stocks in an intrinsic way. When this alternative measure is used instead, it turns out that the price multiplier effect also holds for stocks, at least if one concentrates on samples of companies which are sufficiently homogeneous.

Original languageEnglish (US)
Pages (from-to)1439-1451
Number of pages13
JournalInternational Journal of Modern Physics C
Volume14
Issue number10
DOIs
StatePublished - Dec 2003
Externally publishedYes

Keywords

  • Price-dividend ratio
  • Real estate
  • Speculation
  • Stock prices

ASJC Scopus subject areas

  • Statistical and Nonlinear Physics
  • Mathematical Physics
  • Physics and Astronomy(all)
  • Computer Science Applications
  • Computational Theory and Mathematics

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