Liquidity Changes Following Stock Splits THOMAS E. COPELAND* I. Introduction THERE HAS BEEN CONSIDERABLE empirical research on the return behavior of common stocks in calendar intervals surrounding stock splits. A partial list includes work by Barker ; Johnson ; Hausman, West and Largay ; Fama, Fisher, Jensen, and Roll ; and Bar-Yosef and Brown [l]. However, little or no evidence has been collected about stockholder trading behavior in split-up securities. This is surprising because it is often alleged that stocks split because they provide âbetterâ markets for trading. This study presents evidence about the liquidity effects of stock splits. There are numerous rationales for stock splits, and many are related to the liquidity of trading. For example, one often hears on Wall Street that there is an âoptimalâ price range for securities. Stocks which trade in this range are presumed to have lower brokerage fees as a percent of value traded and therefore appear to be more liquid. This âoptimalâ range is considered to be a compromise between the desires of wealthy investors and institutions who will minimize brokerage costs if securities are high-priced, and the desires of small investors who will minimize odd-lot brokerage costs if securities
The Journal of Finance – Wiley
Published: Mar 1, 1979
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