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How is the market reaction to stock splits?

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  • Juan Reboredo

Abstract

This paper examines the market effect of stock splits on stock price, return, volatility, and trading volume around the split ex-dates for a sample of stock splits undertaken in the Spanish stock market during 1998-1999. The empirical evidence confirms a negative effect on price and return of stock splits, and the presence of a positive effect on volatility and trading volume. These results suggest that stock splits have induced the market to revise its optimistic valuation about future firm performance, rejecting signalling hypothesis according to which splits convey positive information to markets. Therefore, stock splits have reduced the wealth of shareholders.

Suggested Citation

  • Juan Reboredo, 2003. "How is the market reaction to stock splits?," Applied Financial Economics, Taylor & Francis Journals, vol. 13(5), pages 361-368.
    • Handle: RePEc:taf:apfiec:v:13:y:2003:i:5:p:361-368
    DOI: 10.1080/09603100210130617
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    Cited by:

    1. Eddy Junarsin & Bayu Pranoto, 2009. "Information Content and Intra-Industry Effect of Stock Splits: Evidence from Indonesia," Accounting & Taxation, The Institute for Business and Finance Research, vol. 1(1), pages 15-27.

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