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The Market Reaction to Stock Splits

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Author Info
 Lamoureux, Christopher G
Poon, Percy
Abstract

In this paper, a model of market reaction to stock splits is presented and tested. The auth ors argue that the announcement of a split sets off the following cha in of events: the market recognizes that subsequent to the (reverse) split ex-day, the daily number of transactions along with the raw vol ume of shares traded will increase (decrease); this increase in volum e results in an increase in the noisiness of the security's return pr ocess; the increase in noise raises the tax-option value of the stock -and it is this value that generates the announcement effect of stock splits. Copyright 1987 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 42 (1987)
Issue (Month): 5 (December)
Pages: 1347-70
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Handle: RePEc:bla:jfinan:v:42:y:1987:i:5:p:1347-70

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  1. Susana Menéndez & Silvia Gómez-Ansón, 2003. "Stock splits: motivations and valuation effects in the Spanish market," Investigaciones Economicas, Fundación SEPI, vol. 27(3), pages 459-490, September. [Downloadable!]
  2. Renneboog, L.D.R. & Spaenjers, C., 2008. "The Dutch Grey Market," Discussion Paper 2008-88, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  3. Qiang Li & Hua Sun & Seow Ong, 2006. "REIT Splits and Dividend Changes: Tests of Signaling and Information Substitutability," The Journal of Real Estate Finance and Economics, Springer, vol. 33(2), pages 127-150, September. [Downloadable!] (restricted)
  4. Juan Carlos Gómez-Sala, 2001. "Rentabilidad y liquidez alrededor de la fecha de desdoblamiento de las acciones," Investigaciones Economicas, Fundación SEPI, vol. 25(1), pages 171-202, January. [Downloadable!]
  5. David Michayluk & Paul Kofman, 2001. "Market Structure and Stock Splits," Research Paper Series 62, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
  6. John R. Ezzell & James A. Miles & J. Harold Mulherin, 2001. "Is there Really a When-Issued Premium?," Claremont Colleges Working Papers 2001-34, Claremont Colleges. [Downloadable!]
  7. Harris, Jeffrey H. & Panchapagesan, Venkatesh & Werner, Ingrid, 2008. "Off but Not Gone: A Study of Nasdaq Delistings," Working Paper Series 2008-6, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
  8. Chitru S. Fernando & Srinivasan Krishnamurthy & Paul A. Spindt, 2002. "Is the Offer Price in IPOs Informative? Underpricing, Ownership Structure, and Performance," Center for Financial Institutions Working Papers 01-33, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  9. LOVO, Stefano & DECAMPS, Jean-Paul, 2003. "Market informational inefficiency, risk aversion and quantity grid," Les Cahiers de Recherche 770, HEC Paris. [Downloadable!]
  10. Gow-Cheng Huang & Kartono Liano & Ming-Shiun Pan, 2006. "Do stock splits signal future profitability?," Review of Quantitative Finance and Accounting, Springer, vol. 26(4), pages 347-367, June. [Downloadable!] (restricted)
  11. Juan Luis Nicolau, 2001. "Parametric And Nonparametric Approaches To Event Studies: An Application To A Hotel'S Market Value," Working Papers. Serie AD 2001-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
  12. Edward J. Kane & Berry K. Wilson, 1998. "A Contracting-Theory Interpretation of the Origins of Federal Deposit Insurance," NBER Working Papers 6451, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Tawatnuntachai, Oranee & D'Mello, Ranjan, 1999. "Intra-industry reactions of stock split announcements," Working Papers 1999-01, University of New Orleans, Department of Economics and Finance. [Downloadable!]
  14. William Hardin & Kartono Liano & Gow-Cheng Huang, 2005. "REIT Stock Splits and Market Efficiency," The Journal of Real Estate Finance and Economics, Springer, vol. 30(3), pages 297-315, April. [Downloadable!] (restricted)
  15. Terrence Martell & Gwendolyn Webb, 2008. "The performance of stocks that are reverse split," Review of Quantitative Finance and Accounting, Springer, vol. 30(3), pages 253-279, April. [Downloadable!] (restricted)
  16. Décamps, Jean-Paul & Lovo, Stefano, 2003. "Market Informational Inefficiency, Risk Aversion and Quantity Grid," IDEI Working Papers 177, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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