Are lower price stocks more likely to have larger % change in value?

[mjl3434]

I was wondering if you guys think that lower-priced stocks are more likely to have larger changes in price (in percentage terms) than higher-priced stocks. Or are changes in value in percentage terms more or less independent of price? [I am not talking about penny stocks here but stocks with a decent capitalization, say cap >= $250M.]

From doing some quick searching I think the answer probably is no but that brings me to another question. Does overall market capitalization have relate to how much a stock's value is likely to change?

This I find more likely. I think smaller companies have less capital and are less able to weather periods without profit, hence they can crash and burn. Of course since they are small it's also probably easier to grow to twice their size (whereas that is almost unimaginable in the short term for a huge company like IBM or Exxon Mobil).

[aiki14]

I was wondering if you guys think that lower-priced stocks are more likely to have larger changes in price (in percentage terms) than higher-priced stocks. Or are changes in value in percentage terms more or less independent of price? [I am not talking about penny stocks here but stocks with a decent capitalization, say cap >= $250M.]

From doing some quick searching I think the answer probably is no but that brings me to another question. Does overall market capitalization have relate to how much a stock's value is likely to change?

This I find more likely. I think smaller companies have less capital and are less able to weather periods without profit, hence they can crash and burn. Of course since they are small it's also probably easier to grow to twice their size (whereas that is almost unimaginable in the short term for a huge company like IBM or Exxon Mobil).

Lower priced stocks have a greater tendency towards price fluctuations on a percentage basis, and it's not a linear relationship either, meaning the lower the price the swings get even larger.

Certainly lower caps are also subject to higher fluctuations for just the reason you suggest.

There is a tendency of lower capitalized stocks having a lower price, generally. As a company becomes more mature the relationship between cap and stock price becomes less important, 2 companies with market caps of 2 billion can have pretty big diffs in price due to splits, different multiples and sectors, while being equally stable.

The key relationship is not price to cap, rather it is price to earnings (P/E ratio). Combined with the "multiple" and projected growth (PEG ratio) you get the real crux of the relationship.

These are generalities so you should look at each stock in the context of it's own situation.

[LongArm]

There's a theory called "square root volatility" which says that stocks tend to move in proportion to the square roots of their price. For example, if the market goes up and takes ABC from $25 to $36 (square root of 5 to a square root of 6), you might expect XYZ, which started at $4, to go to $9, because it's square root should also advance by one (from 2 to 3). That's a 44% increase for the $25 stock compared to a 125% increase for the $4 stock.

This is a very general rule of thumb and there are many different variables, but it's kind of interesting anyway. Aiki gave the real answer.

[wallstreetsedge]

also... lower priced stocks are more affordable and carry higher commissions.

affordability + high commission = more volume

more volume = more price fluctuation

[mjl3434]

affordability + high commission = more volume I can see why affordability would lead to more volume, but not why high commission would. It seems like the lower the commission the more likely people would be to buy and sell.

[wallstreetsedge]

lets say your paying $20 per trade...


if you play with $2000, thats 1%
if you play with 20,000 thats .1%