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Stock splits in a retail dominant order driven market

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  • Pavabutr, Pantisa
  • Sirodom, Kulpatra
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    Abstract

    This paper uses intraday and daily data from the Stock Exchange of Thailand (SET) between 2002 and 2004 to provide evidence that firms use stock splits to bring their stock prices down to a preferred trading range of their clientele base. Stock splits reduce bid-ask spreads and intraday and daily price impact while increasing depths supplied by retail investors who account for 60-70% of trading on the SET. Firms that choose a high split factor experience greater improvement in liquidity. The study finds no evidence that split announcements are used to signal post-split earnings performance.

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    Bibliographic Info

    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 18 (2010)
    Issue (Month): 5 (November)
    Pages: 427-441

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    Handle: RePEc:eee:pacfin:v:18:y:2010:i:5:p:427-441

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    Web page: http://www.elsevier.com/locate/pacfin

    Related research

    Keywords: Stock splits Liquidity Asset pricing Tick size Trading range;

    References

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    2. Gray, Stephen F. & Smith, Tom & Whaley, Robert E., 2003. "Stock splits: implications for investor trading costs," Journal of Empirical Finance, Elsevier, vol. 10(3), pages 271-303, May.
    3. Liu, Wai-Man, 2009. "Monitoring and limit order submission risks," Journal of Financial Markets, Elsevier, vol. 12(1), pages 107-141, February.
    4. Glosten, Lawrence R, 1989. "Insider Trading, Liquidity, and the Role of the Monopolist Specialist," The Journal of Business, University of Chicago Press, vol. 62(2), pages 211-35, April.
    5. Ikenberry, David L. & Rankine, Graeme & Stice, Earl K., 1996. "What Do Stock Splits Really Signal?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 357-375, September.
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    7. Anshuman, V. Ravi & Kalay, Avner, 2002. "Can splits create market liquidity? Theory and evidence," Journal of Financial Markets, Elsevier, vol. 5(1), pages 83-125, January.
    8. Muscarella, Chris J. & Vetsuypens, Michael R., 1996. "Stock splits: Signaling or liquidity? The case of ADR 'solo-splits'," Journal of Financial Economics, Elsevier, vol. 42(1), pages 3-26, September.
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    13. Easley, David & O'Hara, Maureen & Saar, Gideon, 2001. "How Stock Splits Affect Trading: A Microstructure Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(01), pages 25-51, March.
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    15. Merton, Robert C., 1987. "A simple model of capital market equilibrium with incomplete information," Working papers 1869-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    16. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-35, November.
    17. Grinblatt, Mark S. & Masulis, Ronald W. & Titman, Sheridan, 1984. "The valuation effects of stock splits and stock dividends," Journal of Financial Economics, Elsevier, vol. 13(4), pages 461-490, December.
    18. Paul Schultz, 2000. "Stock Splits, Tick Size, and Sponsorship," Journal of Finance, American Finance Association, vol. 55(1), pages 429-450, 02.
    19. Davies, Ryan J. & Kim, Sang Soo, 2009. "Using matched samples to test for differences in trade execution costs," Journal of Financial Markets, Elsevier, vol. 12(2), pages 173-202, May.
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