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Stock-Split Post-Announcement Returns: Underreaction or Market Friction?

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  • Rodney D. Boehme
  • Bartley R. Danielsen

Abstract

We explore the relationship between stock splits and subsequent long-term returns during the period from 1950 to 2000. We find that, contrary to much previous research, firms do not exhibit positive long-term post-split returns. Instead, we find that significant positive returns after the announcement date do not persist after the actual date of the stock split. We also observe that abnormal returns are correlated with the price-delay or market friction. We conclude that the stock-split post-announcement "drift" is only of short duration, and it is attributable to trading frictions rather than behavioral biases. Copyright 2007, The Eastern Finance Association.

Suggested Citation

  • Rodney D. Boehme & Bartley R. Danielsen, 2007. "Stock-Split Post-Announcement Returns: Underreaction or Market Friction?," The Financial Review, Eastern Finance Association, vol. 42(4), pages 485-506, November.
  • Handle: RePEc:bla:finrev:v:42:y:2007:i:4:p:485-506
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6288.2007.00180.x
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    Cited by:

    1. Bill B. Francis & Iftekhar Hasan & Mingming Zhou, 2013. "The effects of stock splits on the bid-ask spread of syndicated loans," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 5(1/2), pages 159-187.

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