The Low Price Anomaly: the Intriguing Case of the Polish Stock Market

Inzinerine Ekonomika-Engineering Economics, 2016, 27(2), 163-174.

12 Pages Posted: 15 May 2015 Last revised: 10 May 2016

See all articles by Adam Zaremba

Adam Zaremba

Montpellier Business School; Poznan University of Economics and Business; University of Cape Town

Szymon Okoń

Poznan University of Economics

Andrzej Nowak

Poznan University of Economics

Przemyslaw Konieczka

Warsaw School of Economics (SGH)

Date Written: May 14, 2015

Abstract

This study investigates the low-price effect on the Polish stock market. By adopting sorting, cross-sectional tests and checks of the monotonic relation, we have examined the performance of the portfolios formed on the prices of over 850 companies listed on the Polish stock market within the years 2000-2014. Contrary to the globally prevailing evidence, the expensive stocks have significantly outperformed the cheap stocks. Additional sorts on value, size and momentum may be used further to improve the price-based strategies while the strongest anomaly has been identified among the growth companies. We hypothesize that the reverse character of the low-price anomaly may be explained by the impact of another phenomena: the underperformance of lottery-stocks. With the exception of the growth stocks, the reverse low-price effect is no longer significant after the exclusion of NewConnect companies. Finally, by adopting an alternative methodology, we have provided convincing out-of-sample evidence in support of the hypothesis of Baker et al. (2009) stating that corporate managers cater to investors by splitting their company shares in response to time-varying catering incentives.

Keywords: low-price effect, Polish stock market, Warsaw Stock Exchange, cross-section of stock returns, splits, catering theory, share prices, stock market anomalies, behavioral finance, factor investing, NewConnect, lottery stocks

JEL Classification: G02, G11, G12

Suggested Citation

Zaremba, Adam and Okoń, Szymon and Nowak, Andrzej and Konieczka, Przemyslaw, The Low Price Anomaly: the Intriguing Case of the Polish Stock Market (May 14, 2015). Inzinerine Ekonomika-Engineering Economics, 2016, 27(2), 163-174., Available at SSRN: https://ssrn.com/abstract=2606176 or http://dx.doi.org/10.2139/ssrn.2606176

Adam Zaremba (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000
France

HOME PAGE: http://sites.google.com/view/adamzaremba

Poznan University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

University of Cape Town

Cape Town
South Africa

Szymon Okoń

Poznan University of Economics ( email )

Poznan, 60-967
Poland

Andrzej Nowak

Poznan University of Economics ( email )

Poznan, 60-967
Poland

Przemyslaw Konieczka

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

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