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Stock splits and retail trading

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  • Justin Cox
  • Bonnie Van Ness
  • Robert Van Ness

Abstract

We analyze retail trading around both forward and reverse stock splits. While some suggest stock splits align prices in an optimal range, which results in disperse ownership with more persistent retail investor participation, Minnick and Raman suggest that the lack of retail trader participation mitigates the use of splits to align prices in an optimal range and contributes to decreased use of stock splits. We determine if stock splits still attract more retail trading as suggested by the optimal price range hypothesis. Our results suggest stock splits are not a “one size fits all” method for attracting retail traders. Whether retail trading is transitory or permanent for forward and reverse stock splits is dependent upon price.

Suggested Citation

  • Justin Cox & Bonnie Van Ness & Robert Van Ness, 2022. "Stock splits and retail trading," The Financial Review, Eastern Finance Association, vol. 57(4), pages 731-750, November.
    • Handle: RePEc:bla:finrev:v:57:y:2022:i:4:p:731-750
    DOI: 10.1111/fire.12294
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    References listed on IDEAS

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    Cited by:

    1. Kee H. Chung & Chairat Chuwonganant, 2023. "Tick size and price efficiency: Further evidence from the Tick Size Pilot Program," Financial Management, Financial Management Association International, vol. 52(3), pages 483-511, September.
    2. Eaton, Gregory W. & Green, T. Clifton & Roseman, Brian S. & Wu, Yanbin, 2022. "Retail trader sophistication and stock market quality: Evidence from brokerage outages," Journal of Financial Economics, Elsevier, vol. 146(2), pages 502-528.
    3. Justin Cox & Kathleen P. Fuller & Robert Van Ness, 2024. "Where does ex‐dividend trading occur: An examination of trading venues around dividends," The Financial Review, Eastern Finance Association, vol. 59(1), pages 31-55, February.
    4. Gempesaw, David & Henry, Joseph J. & Velthuis, Raisa, 2022. "Piecing together the extent of retail fractional trading," Global Finance Journal, Elsevier, vol. 54(C).
    5. Martineau, Charles & Zoican, Marius, 2023. "Retail trading and analyst coverage," Journal of Financial Markets, Elsevier, vol. 66(C).

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