Market Reactions to Stock Splits: Experimental Evidence

John Duffy, Jean Paul Rabanal () and Olga Rud ()
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Olga Rud: University of Stavanger, Postal: University of Stavanger, NO-4036 Stavanger, Norway

No 2021/1, UiS Working Papers in Economics and Finance from University of Stavanger

Abstract: We report on an experiment studying market reactions to stock splits and reverse splits. In the first environment, two assets have increasing fundamental values, and one asset is subject to a 2-for-1 share split while the other is not. In the second environment, the fundamental values of both assets are decreasing, and one asset is subject to a 1-for-2 reverse split while the other is not. We find that share prices do not fully adjust to changes in fundamental values per share following both types of splits and we relate this phenomenon to difficulties that traders have with proportional thinking.

Keywords: Stock splits; behavioral finance (search for similar items in EconPapers)
JEL-codes: C92 G10 G40 G41 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2021-09-29
New Economics Papers: this item is included in nep-exp and nep-fmk
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Journal Article: Market reactions to stock splits: Experimental evidence (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:stavef:2021_001

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