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Stock splits, liquidity, and information asymmetry--An empirical study on Tokyo Stock Exchange

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  • Guo, Fang
  • Zhou, Kaiguo
  • Cai, Jinghan

Abstract

This paper comprehensively studies the effects of stock splits on the market characteristics of the stocks and also tries to give an explanation for the results referring to the existing hypotheses and previous empirical results. We investigate the trading activity, liquidity, information asymmetry, and the investors' behavior changes around the stock splits. We find that the stock splits tend to increase the trading activity, to enhance the market liquidity, to reduce the information asymmetry, and to lower the probability of informed trading. Several main existing explanations--signaling hypothesis, trading range hypothesis, and tick size hypothesis--are largely supported by our empirical findings. J. Japanese Int. Economies 22 (3) (2008) 417-438.

Suggested Citation

  • Guo, Fang & Zhou, Kaiguo & Cai, Jinghan, 2008. "Stock splits, liquidity, and information asymmetry--An empirical study on Tokyo Stock Exchange," Journal of the Japanese and International Economies, Elsevier, vol. 22(3), pages 417-438, September.
    • Handle: RePEc:eee:jjieco:v:22:y:2008:i:3:p:417-438
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    2. Cahit Adaoglu & Meziane Lasfer, 2011. "Why Do Companies Pay Stock Dividends? The Case of Bonus Distributions in an Inflationary Environment," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 38(5-6), pages 601-627, June.
    3. Sheridan Titman & Naoto Isaka, 2014. "Long-run Effects of Minimum Trading Unit Reductions on Stock Prices," International Review of Finance, International Review of Finance Ltd., vol. 14(1), pages 75-103, March.

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