The Influence of Penny Stocks on the Pricing of Companies Quoted on the Warsaw Stock Exchange in the Context of the ICAPM
The Influence of Penny Stocks on the Pricing of Companies Quoted on the Warsaw Stock Exchange in the Context of the ICAPM

Summary/Abstract: The paper attempts to explain the impact of penny stock on pricing in light of the ICAPM as stock exchanges introduce restrictions on penny stocks trading. The study is conducted using stocks listed on the Warsaw Stock Exchange (WSE) between 1995-2012. The systematic risk and risk prices components are simulated by two chosen ICAPM applications, using different procedures of portfolio construction. The main market WSE stocks are sorted into queintile portfolios using two procedures. It is assumed that elimination of penny stocks contributes to more correct pricing, observed with ICAPM validity, however only when simulating algorithm uses appropriate construction of tested portfolios. The tests were carried out in four modes. All WSE stocks were analyzed in mode 1. Penny stocks with market values lower than 1.50, 5.00 and 10.00 PLN were excluded from the study in modes 2, 3 and 4. The analysis indicates that the results are in line with the extended conjectures.

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