Stock splits: Implications for investor trading costs

Gray, Stephen F., Smith, Tom and Whaley, Robert E. (2003) Stock splits: Implications for investor trading costs. Journal of Empirical Finance, 10 3: 271-303. doi:10.1016/S0927-5398(02)00049-X

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Author Gray, Stephen F.
Smith, Tom
Whaley, Robert E.
Title Stock splits: Implications for investor trading costs
Journal name Journal of Empirical Finance   Check publisher's open access policy
ISSN 0927-5398
Publication date 2003-05
Sub-type Article (original research)
DOI 10.1016/S0927-5398(02)00049-X
Volume 10
Issue 3
Start page 271
End page 303
Total pages 33
Editor R. Ballie
Place of publication North Holland
Publisher Elsevier
Collection year 2003
Language eng
Subject C1
350301 Finance
720000 - Economic Framework
Abstract 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 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.
Keyword Stock splits
Investor trading costs
Q-Index Code C1

Document type: Journal Article
Sub-type: Article (original research)
Collections: Excellence in Research Australia (ERA) - Collection
2004 Higher Education Research Data Collection
UQ Business School Publications
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Citation counts: Scopus Citation Count Cited 16 times in Scopus Article | Citations
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Created: Tue, 14 Aug 2007, 19:10:56 EST