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Stock splits: implications for investor trading costs

Gray, Stephen; Smith, Tom; Whaley, Robert


Stock splits are known to have a negative effect on market quality-while stock prices adjust consistently with the split's scale, the bid/ask spread and market depth do not. Two possible explanations for the relative increase in spread are that (i) splits cause an increase in market maker costs that are passed along to investors or (ii) splits provide a mechanism for market makers to increase excess profits. Using a robust econometric methodology, we find evidence of the latter, which raises...[Show more]

CollectionsANU Research Publications
Date published: 2003
Type: Journal article
Source: Journal of Empirical Finance
DOI: 10.1016/S0927-5398(02)00049-X


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