The Permanent and Temporary Effects of Stock Splits on Liquidity in a Dynamic Semiparametric Model

Christian M. Hafner, Oliver Linton and Linqi Wang

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: We develop a dynamic framework to detect the occurrence of permanent and transitory breaks in the illiquidity process. We propose various tests that can be applied separately to individual events and can be aggregated across different events over time for a given firm or across different firms. We use this methodology to study the impact of forward and reverse stock splits on the illiquidity dynamics of the S&P 500, S&P 400 and S&P 600 index stock constituents. Our empirical results show that stock splits have a positive and significant effect on the permanent component of the illiquidity process while a majority of the stocks engaging in reverse splits experience an improvement in liquidity conditions.

Keywords: Amihud illiquidity; DArLiQ; Difference in Difference; Event Study; Nonparametric Estimation; Reverse Split; Structural Change (search for similar items in EconPapers)
JEL-codes: C12 C14 G14 G32 (search for similar items in EconPapers)
Date: 2024-03-01
New Economics Papers: this item is included in nep-fmk and nep-mst
Note: obl20, lw711
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Working Paper: The Permanent and Temporary Effects of Stock Splits on Liquidity in a Dynamic Semiparametric Model (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2410

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