Nominal Price (Dis)illusion: Fractional Shares on Neobroker Trading Platforms

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We investigate neobrokerage traders' preferences for low nominal prices. We hypothesize that innovations such as zero-cost commission and corporate news alerts amplify nominal price illusion biases. We find supportive evidence for a more powerful response than documented in the literature for regular exchanges, using exogenous interventions of stock splits on Robinhood. Surprisingly, one innovation changes everything: the introduction of fractional shares. It eliminates previously amplified effects, while short-term herding behavior based on company news and momentum remains. Our findings primarily support the trading constraints hypothesis over the cognitive bias hypothesis to explain the nominal price illusion.


Original languageGerman
Publication statusPublished - 4 Dec 2023
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  • Nominal Price Illusion, Fractional Shares, Stock Splits, Robinhood