PRICE CHANGES IN EQUITY SECURITIES

Abstract

We are interested in examining differences in price behavior to find causes and relationships. Our method of approach is to compare the price, earnings, and dividend history of a group of stocks showing the greatest price advance in a given investment period with the corresponding record of the group showing the greatest price decline. On the basis of this comparison, we can separate those items in which the two groups are alike and those items in which they are different. The latter items may be significant determinants of price performance. To implement this approach it is necessary to decide on the method of selection and size of the groups of stocks, the investment periods to use, and the data to compare. There are over 1,000 equity stocks listed on the New York Stock Exchange. The comparative availability of necessary data as well as the relative importance of these issues justify limitation of the study to this broad group. The selection of the investment period is somewhat more debatable. We are interested in common stocks from the point of view of the marginal holder, not the so-called permanent investor or the short-term trader. Prices obviously are affected by a group of holders who sell and buy if they think they can improve their position by doing so. The six-month tax-holding period might well be the best investment period to use if data were readily available. It is long enough to eliminate a major part of the influence of short-term erratic fluctuations and yet is short enough to allow the investment flexibility expected of the marginal holder. The greater availability of statistical data on an annual basis justifies the use of an investment period extending from one year end to the next.