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Reverse Stock Splits and Liquidity in ETFs

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  • Olesya Lobanova

    (College of Business, University of Houston-Victoria, Victoria, TX 77901, USA)

  • Alexandre Aidov

    (College of Business, University of Houston-Victoria, Victoria, TX 77901, USA)

Abstract

This study aims to address a gap in the existing literature pertaining to the liquidity of exchange-traded funds (ETFs). Specifically, we examine the effect of reverse share splits on ETF liquidity. In contrast to equities, the utilization of ETFs enables the separation of signaling and liquidity considerations. Findings suggest that liquidity improves after reverse splits in both univariate and multivariate results. In the absence of delisting concerns, results support the liquidity hypothesis of stock splits.

Suggested Citation

  • Olesya Lobanova & Alexandre Aidov, 2023. "Reverse Stock Splits and Liquidity in ETFs," JRFM, MDPI, vol. 17(1), pages 1-12, December.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2023:i:1:p:4-:d:1304224
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    References listed on IDEAS

    as
    1. Roger Huang & H. Weingartner, 2000. "Do Market Makers Suffer from Splitting Headaches?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 17(2), pages 105-126, August.
    2. Tarun Chordia & Richard Roll & Avanidhar Subrahmanyam, 2001. "Market Liquidity and Trading Activity," Journal of Finance, American Finance Association, vol. 56(2), pages 501-530, April.
    3. Samique March-Dallas & Robert Daigler & Suchi Mishra & Arun Prakash, 2018. "Exchange traded funds: leverage and liquidity," Applied Economics, Taylor & Francis Journals, vol. 50(37), pages 4054-4073, August.
    4. Terrence Martell & Gwendolyn Webb, 2008. "The performance of stocks that are reverse split," Review of Quantitative Finance and Accounting, Springer, vol. 30(3), pages 253-279, April.
    5. Farshid Abdi & Angelo Ranaldo, 2017. "A Simple Estimation of Bid-Ask Spreads from Daily Close, High, and Low Prices," The Review of Financial Studies, Society for Financial Studies, vol. 30(12), pages 4437-4480.
    6. Gow-Cheng Huang & Kartono Liano & Ming-Shiun Pan, 2015. "The effects of stock splits on stock liquidity," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(1), pages 119-135, January.
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