Do Stock Prices Conform to an Absolute Price Level?

We study nominal and real stock prices in Sweden over the one hundred and ten year period 1900-2009. We find that the average stock price has declined over time; consistent with the drop in price levels found by Chittenden et al. (2010) but while falling they do not exhibit the constant price level suggested by Weld et al. (2009) given the continued decline in prices over time. In a multivariate setting, the frequency of stock splits, stock dividends and IPOs are positively related to the frequency for these events the prior year and the recent 2-year overall return on the market. We find that there is a greater propensity for a stock split, a stock dividend or an IPO when market returns are higher. In further tests of the price change we find a positive relationship between the price difference to the median price for stock splits and stock dividends and a positive relationship to the 2-year overall market return for stock splits. We conclude that the primary reason for an action such as a stock split, “to make the stock affordable”, is valid for our sample.