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Stock Splits and Bond Yields: Isolating the Signaling Hypothesis


  • David Michayluk
  • Ruoyun Zhao


One explanation offered for stock splits is that the split signals positive information by reducing the stock price range in expectation of improved future prospects. Price declines also lead to changes in stock price dynamics, but related securities are not subject to these other changes and therefore can be used to provide a separate assessment of the markets' interpretation of the split. We examine corporate bond issues around stock splits and find a significant decline in the bond yield spread following stock splits, supporting the signaling hypothesis. We also confirm improvements in forecasted and realized earnings subsequent to stock splits. Copyright (c) 2010, The Eastern Finance Association.

Suggested Citation

  • David Michayluk & Ruoyun Zhao, 2010. "Stock Splits and Bond Yields: Isolating the Signaling Hypothesis," The Financial Review, Eastern Finance Association, vol. 45(2), pages 375-386, May.
  • Handle: RePEc:bla:finrev:v:45:y:2010:i:2:p:375-386

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    References listed on IDEAS

    1. P. Hartmann & S. Straetmans & C. G. de Vries, 2004. "Asset Market Linkages in Crisis Periods," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 313-326, February.
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    5. Christophe Faugere & Julian Van Erlach, 2004. "The Price of Gold: A Global Required Yield Theory," Finance 0403003, EconWPA.
    6. Davidson, Sinclair & Faff, Robert & Hillier, David, 2003. "Gold factor exposures in international asset pricing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(3), pages 271-289, July.
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    Cited by:

    1. Maul, D. & Schiereck, D., 2016. "The bond event study methodology since 1974," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 80723, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    2. Ann Marie Hibbert & Ivelina Pavlova & Joel Barber & Krishnan Dandapani, 2011. "Credit Spread Changes and Equity Volatility: Evidence from Daily Data," The Financial Review, Eastern Finance Association, vol. 46(3), pages 357-383, August.
    3. Ederington, Louis & Guan, Wei & Yang, Lisa (Zongfei), 2015. "Bond market event study methods," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 281-293.

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