Abstract
We show that there is a signi…cant return premium associated with a price level characteris- tic. Cheaper stocks receive a positive premium. The dierence in the estimated yearly premium between a $10 and a $100 security is about 2.8%, after controlling for the Fama-French risk factors. Results are persistent over time and robust to alternative price-scaled variables, idio- syncratic volatility, and size. The premium is also shown not to be driven by stock splits. Conditional portfolio sorts reveal signi…cantly higher returns and higher Sharpe ratios for in- vestment strategies concentrated in low price stocks.
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