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Stock splits: implications for investor trading costs

Gray, Stephen; Smith, Tom; Whaley, Robert

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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]

dc.contributor.authorGray, Stephen
dc.contributor.authorSmith, Tom
dc.contributor.authorWhaley, Robert
dc.date.accessioned2015-12-13T22:34:44Z
dc.identifier.issn0927-5398
dc.identifier.urihttp://hdl.handle.net/1885/76263
dc.description.abstractStock 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 questions about the motivation of the splitting practice. We also document that while NASDAQ spreads appear to adjust more fully than those of NYSE/AMEX stocks, NASDAQ spreads are higher in general.
dc.publisherElsevier
dc.sourceJournal of Empirical Finance
dc.subjectKeywords: Investor trading costs; Stock splits
dc.titleStock splits: implications for investor trading costs
dc.typeJournal article
local.description.notesImported from ARIES
local.description.refereedYes
local.identifier.citationvolume10
dc.date.issued2003
local.identifier.absfor150201 - Finance
local.identifier.ariespublicationMigratedxPub5108
local.type.statusPublished Version
local.contributor.affiliationGray, Stephen, University of Queensland
local.contributor.affiliationSmith, Tom, College of Business and Economics, ANU
local.contributor.affiliationWhaley, Robert, Vanderbilt University
local.description.embargo2037-12-31
local.bibliographicCitation.startpage271
local.bibliographicCitation.lastpage303
local.identifier.doi10.1016/S0927-5398(02)00049-X
dc.date.updated2015-12-11T09:23:50Z
local.identifier.scopusID2-s2.0-0037404873
CollectionsANU Research Publications

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