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

We investigate the channels through which nominal prices affect neotrading behavior. We hypothesize that free commissions and notification alerts reinforce these effects compared with those documented for regular exchanges. Indeed, by exploiting quasi-natural experiments of stock splits on Robinhood, we find evidence of a stronger response. Surprisingly, the introduction of fractional share trading changed everything. It eliminates the amplified effects, except in the short term. Our findings do not support nominal price illusion, a behavioral explanation for the higher preference for lower nominal prices. Instead, they primarily support the affordability constraint hypothesis. These results indicate a dissolving optimal price range.