Open AccessStock-Splits, The Bid-Ask Spread And The Information Hypothesis
Author(s) -
Karen Craft Denning,
Stephen P. Ferris
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v5i3.6346
Subject(s) - stock (firearms) , ask price , economics , financial economics , econometrics , monetary economics , business , finance , geography , archaeology
Though many plausible explanations have been offered, the behavior of splitting shares remains an anomaly. Parameters of the stock return distribution shift around the time of the split announcement despite the fact that there is no obvious economic significance to the splitting of a firms shares. This paper directly examines the Information Hypothesis as an explanation for the observed increase in means and variance of stock returns at the time of the split announcement. Results from an analysis of all splitting shares on the CRSP Tap reveals a relationship between the bid-ask spread and trading volume that is consistent with the Information Hypothesis.