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Does Volatility Decrease After Reverse Stock Splits?


  • Jennifer L. Koski


Previous research documents that volatility decreases after reverse stock splits. I show that measurement effects bias observed volatility, especially for lower priced stocks. Based on observed returns, volatility decreases 25% after reverse splits. Controlling for bid-ask bounce, volatility still decreases for stocks with prices above $5.00. However, for stocks below $2.00, volatility increases slightly. The portion of observed volatility attributable to measurement effects declines as the stock price increases and as the minimum tick size decreases. Finally, there is a significant and positive cross-sectional relation between changes in the number of trades and changes in volatility after reverse splits. 2007 The Southern Finance Association and the Southwestern Finance Association.

Suggested Citation

  • Jennifer L. Koski, 2007. "Does Volatility Decrease After Reverse Stock Splits?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 30(2), pages 217-235.
  • Handle: RePEc:bla:jfnres:v:30:y:2007:i:2:p:217-235

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    Cited by:

    1. Jae-Kwang Hwang & Young Dimkpah & Alex Ogwu, 2012. "Do Reverse Stock Splits Benefit Long-term Shareholders?," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(4), pages 439-449, November.
    2. repec:kap:iaecre:v:18:y:2012:i:4:p:439-449 is not listed on IDEAS
    3. Neuhauser, Karyn L. & Thompson, Thomas H., 2016. "Survivability following reverse stock splits: What determines the fate of non-surviving firms?," Journal of Economics and Business, Elsevier, vol. 83(C), pages 1-22.

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