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Is Share Price Related to Marketability? Evidence from Mutual Fund Share Splits

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  • Chitru S. Fernando
  • Srinivasan Krishnamurthy
  • Paul A. Spindt

Abstract

We examine the "marketability hypothesis," which states that stock splits enhance the attractiveness of shares to investors by restoring prices to a preferred trading range. We examine splits of mutual fund shares because they provide a clean testing ground for the marketability hypothesis, since the conventional rationales for common stock splits do not apply. We find that splitting funds experience significant increases (relative to non-splitting matched funds) in net assets and shareholders. Stock splits do appear to enhance marketability.

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File URL: http://fic.wharton.upenn.edu/fic/papers/97/9706.pdf
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Bibliographic Info

Paper provided by Wharton School Center for Financial Institutions, University of Pennsylvania in its series Center for Financial Institutions Working Papers with number 97-06.

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Date of creation: Aug 1999
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Handle: RePEc:wop:pennin:97-06

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  1. Michael S. Rozeff, 1998. "Stock Splits: Evidence from Mutual Funds," Journal of Finance, American Finance Association, vol. 53(1), pages 335-349, 02.
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Cited by:
  1. Fernando, Chitru S. & Krishnamurthy, Srinivasan & Spindt, Paul A., 2004. "Are share price levels informative? Evidence from the ownership, pricing, turnover and performance of IPO firms," Journal of Financial Markets, Elsevier, vol. 7(4), pages 377-403, October.
  2. Chen, Honghui & Nguyen, Hoang Huy & Singal, Vijay, 2011. "The information content of stock splits," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2454-2467, September.
  3. Lin, Ji-Chai & Singh, Ajai K. & Yu, Wen, 2009. "Stock splits, trading continuity, and the cost of equity capital," Journal of Financial Economics, Elsevier, vol. 93(3), pages 474-489, September.
  4. 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.
  5. William C. Weld & Roni Michaely & Richard H. Thaler & Shlomo Benartzi, 2009. "The Nominal Share Price Puzzle," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 121-42, Spring.

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