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> does it reduce volatility by requiring a larger outlay to participate? Yes. Absolutely. It also makes it less appealing to retail investors. Eg. Berkshire Ha

> does it reduce volatility by requiring a larger outlay to participate? Yes. Absolutely. It also makes it less appealing to retail investors. Eg. Berkshire Hathaway A stock is 431,536.38 at time of writing. Amazon is 3,608.66, Apple is 163.27. Apple is supposedly the most popular consumer-held stock. It also makes it harder to use derivative products. eg. Options require buying/selling 100x shares, so Berkshire Hathaway would literally require millions of dollars for one option contract. That surely impacts trade volume. > Does [fractional shares] mean that every stock becomes a penny stock- subject to unpredictable price moves as a result of cheap speculation? Yes and no. Not all companies are available as fractions. Also, the Robinhood investor who is day trading from his phone at work is probably using fractional and driving price movements (eg. GME), but the day trading full time investor class is not using fractional shares nearly as much. A lot of more professional-focused platforms either don't allow fractions (or don't for pro users), or don't make full features available. Eg. IBKR is a common platform for Algo trading and their api doesn't allow fractional shares (but their manual GUI with app allows it). This is likely due to technical and liquidity reasons as much as pragmatic ones. When a fractional share is available, that basically means the broker owns the shares, and gives you partial ownership. They need to basically own n+1 across their platform for all users (round up). If you're doing large trading volumes, that's impractical to keep up with on their end - especially if you quickly buy a lot and sell back. > does it mean that every stock becomes a penny stock Just to repeat, usually brokers only support the most popular stocks as fractional, which already have high volume. This means it may not have a huge impact on the system - but that's just speculation, i don't know if it has had an impact on the stocks like you suggest.

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Kranar 5y ago
>Yes. Absolutely. There is no causal relationship between nominal price and volatility. There are correlations between price and volatility, but it's that cheap stocks (such as those below 5 dollars) are usually much more volatile than expensive ones. The same goes for liquidity, there is also no causal relationship between nominal price and liquidity. You can verify yourself that Berkshire Hathaway's price has no effect whatsoever on either volatility or liquidity, just compare BRK-A which trades at ~300,000 dollars with BRK-B which trades at ~200 dollars: https://finance.yahoo.com/chart/BRK-B#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- https://finance.yahoo.com/chart/BRK-B#eyJpbnRlcnZhbCI6IndlZW... As a quant it would be nice of this property didn't hold, would be an easy arbitrage... but alas no such arbitrage opportunity is readily available.
- vineyardmike 5y ago
  > You can verify yourself that Berkshire Hathaway's price has no effect whatsoever on either volatility or liquidity, just compare BRK-A with BRK-B: I don't think this is a good example, because Brk A/B are clearly related (same company) and so that presents a perfect arbitrage opportunity. I think a better test would be to compare a single ticker before and after a split.
  - a-dub 5y ago
    > I don't think this is a good example, because Brk A/B are clearly related (same company) and so that presents a perfect arbitrage opportunity. agree. what couples their prices is actually a bit of a mystery to me though, conversions from class a to class b are non-taxable so that keeps class b from mispricing above class a, but i think if you want to go from b to a you have to sell and then buy on the open market which then means that the misprice would have to be greater than any cap gains plus trading costs for an amount equal to one share of class a, which seems like, a lot. skimming the internet sure makes it sound like splits are associated with increased volatility and reverse splits are associated with decreased volatility, which seems to check out a bit with respect to the idea of increased or decreased minimum bets on the options markets.
    - anamax 5y ago
      > misprice would have to be greater than any cap gains plus trading costs Tax is a percentage of the profit or loss. At the time-scale you're talking, it would be ordinary income rates. If the difference between what you pay and what you get is $100 (after expenses), you pay taxes on $100, no matter how much you paid. Yup, even if you paid $10M and received $10M+$100.

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Kranar 5y ago

>Yes. Absolutely. There is no causal relationship between nominal price and volatility. There are correlations between price and volatility, but it's that cheap stocks (such as those below 5 dollars) are usually much more volatile than expensive ones. The same goes for liquidity, there is also no causal relationship between nominal price and liquidity. You can verify yourself that Berkshire Hathaway's price has no effect whatsoever on either volatility or liquidity, just compare BRK-A which trades at ~300,000 dollars with BRK-B which trades at ~200 dollars: https://finance.yahoo.com/chart/BRK-B#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- https://finance.yahoo.com/chart/BRK-B#eyJpbnRlcnZhbCI6IndlZW... As a quant it would be nice of this property didn't hold, would be an easy arbitrage... but alas no such arbitrage opportunity is readily available.

vineyardmike 5y ago
> You can verify yourself that Berkshire Hathaway's price has no effect whatsoever on either volatility or liquidity, just compare BRK-A with BRK-B: I don't think this is a good example, because Brk A/B are clearly related (same company) and so that presents a perfect arbitrage opportunity. I think a better test would be to compare a single ticker before and after a split.
- a-dub 5y ago
  > I don't think this is a good example, because Brk A/B are clearly related (same company) and so that presents a perfect arbitrage opportunity. agree. what couples their prices is actually a bit of a mystery to me though, conversions from class a to class b are non-taxable so that keeps class b from mispricing above class a, but i think if you want to go from b to a you have to sell and then buy on the open market which then means that the misprice would have to be greater than any cap gains plus trading costs for an amount equal to one share of class a, which seems like, a lot. skimming the internet sure makes it sound like splits are associated with increased volatility and reverse splits are associated with decreased volatility, which seems to check out a bit with respect to the idea of increased or decreased minimum bets on the options markets.
  - anamax 5y ago
    > misprice would have to be greater than any cap gains plus trading costs Tax is a percentage of the profit or loss. At the time-scale you're talking, it would be ordinary income rates. If the difference between what you pay and what you get is $100 (after expenses), you pay taxes on $100, no matter how much you paid. Yup, even if you paid $10M and received $10M+$100.