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The Market Reaction Around Ex-Dates of Stock Splits Before and After Decimalization

Author

Listed:
  • Robin K. Chou

    (Department of Finance, National Central University, Jhongli City, Taoyuan, Taiwan, R.O.C.)

  • Wan-Chen Lee

    (Department of Finance, Ching Yun University, Jhongli City, Taoyuan, Taiwan, R.O.C.)

  • Sheng-Syan Chen

    (Department of Finance, National Taiwan University, Taipei, Taiwan, R.O.C.)

Abstract

This paper examines the stock price behavior around the ex-split dates both before and after the decimalization on the New York Stock Exchange (NYSE). We find that the abnormal ex-split day returns decrease and the abnormal trading volume increases in the 1/16th and decimal pricing eras, relative to the 1/8th pricing era. These findings are consistent with the microstructure-based explanations for the ex-day price movements. Our study also supports the hypothesis that short-term traders perform arbitrage activities during the ex-split dates when transaction costs become lower after the tick size is reduced.

Suggested Citation

  • Robin K. Chou & Wan-Chen Lee & Sheng-Syan Chen, 2005. "The Market Reaction Around Ex-Dates of Stock Splits Before and After Decimalization," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 8(02), pages 201-216.
    • Handle: RePEc:wsi:rpbfmp:v:08:y:2005:i:02:n:s0219091505000415
    DOI: 10.1142/S0219091505000415
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    Citations

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    Cited by:

    1. Ming-Chang Cheng & Ching-Hwa Lee, 2016. "Trading Activities Around Ex-Dividend Days: Evidence from the Taiwan Stock Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-17, March.
    2. Bamanga Umar & Sabri Nayan, 2018. "Does Regulatory Quality Matters for Stock Market Development? Evidence from Africa," International Journal of Economics and Financial Issues, Econjournals, vol. 8(4), pages 10-15.
    3. Jack Francis & Tsing Wu & Nan-Ting Kuo, 2012. "Effects of tax reform on drop-off ratios and on the ex-dividend and ex-right prices," Review of Quantitative Finance and Accounting, Springer, vol. 39(2), pages 147-164, August.
    4. Li Eng & Joohyung Ha & Sandeep Nabar, 2014. "The impact of regulation FD on the information environment: evidence from the stock market response to stock split announcements," Review of Quantitative Finance and Accounting, Springer, vol. 43(4), pages 829-853, November.
    5. Charlie Charoenwong & David K. Ding & Tiong Yang Thong, 2016. "Decimalization, IPO aftermath, and liquidity," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 1303-1344, November.
    6. Keith Jakob & Ryan Whitby, 2017. "The impact of nominal stock price on ex-dividend price responses," Review of Quantitative Finance and Accounting, Springer, vol. 48(4), pages 939-953, May.

    More about this item

    Keywords

    Stock splits; decimalization; ex-dates;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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