Beta Changes around Stock Splits: A Note M. J. BRENNAN and T. E. COPELAND* The great tragedy of Science-the ugly fact. slaying of a beautiful hypothesis by an T. H. Huxley NONSTATIONARITY DISTRIBUTION of security returns is a theoretically IN THE acceptable phenomenon that is well confirmed empirically. Less acceptable from a theoretical viewpoint is the possibility that the nonstationarity should be associated with âirrelevantâ events such as stock splits and stock dividends. Yet Ohlson and Penman  have shown that the variance of stock returns exhibits a striking increase immediately following the effective date of a stock split, despite the fact that the split is announced in advance. This finding is confirmed by Dravid , who also reports a decrease in the variance at the time of stock dividends. Although Ohlson and Penman consider several possible explanations for this phenomenon, none seems to be consistent with the evidence. In this note, we report that the anomalous behavior of the return distribution extends to the âbeta coefficient,â which exhibits a temporary increase of about twenty percent a t the time of a split announcement and increases about thirty percent a t the time the split becomes effective; in
The Journal of Finance – Wiley
Published: Sep 1, 1988
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