EconPapers    
Economics at your fingertips  
 

How Stock Splits Affect Trading: A Microstructure Approach

David Easley, Maureen O'Hara and Gideon Saar

Journal of Financial and Quantitative Analysis, 2001, vol. 36, issue 01, 25-51

Abstract: Extending an empirical technique developed in Easley, Kiefer, and O'Hara (1996), (1997a), we examine different hypotheses about stock splits. In line with the trading range hypothesis, we find that stock splits attract uninformed traders. However, we also find that informed trading increases, resulting in no appreciable change in the information content of trades. Therefore, we do not find evidence consistent with the hypothesis that stock splits reduce information asymmetries. The optimal tick size hypothesis predicts that stock splits attract limit order trading and this enhances the execution quality of trades. While we find an increase in the number of executed limit orders, their effect is overshadowed by the increase in the costs of executing market orders due to the larger percentage spreads. On balance, the uninformed investors' overall trading costs rise after stock splits.

Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (57) Track citations by RSS feed

Downloads: (external link)
https://journals.cambridge.org/abstract_S0022109000009388 link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:36:y:2001:i:01:p:25-51_00

Access Statistics for this article

More articles in Journal of Financial and Quantitative Analysis from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Keith Waters ().

 
Page updated 2019-07-24
Handle: RePEc:cup:jfinqa:v:36:y:2001:i:01:p:25-51_00