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The Impact of Clientele Changes: Evidence from Stock Splits

Ravi Dhar
Yale School of Management - International Center for Finance

William N. Goetzmann
Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Ning Zhu
University of California, Davis - Graduate School of Management; Yale School of Management; China Academy of Financial Research (CAFR)

Yale ICF Working Paper No. 03-14
EFA 2005 Moscow Meetings Paper
AFA 2005 Philadelphia Meetings

Abstract:
We examine the trades of individual and professional investors around stock splits and find that splits bring about a significant shift in investor clientele. We find that a higher fraction of post-split trades are made by less sophisticated investors, as individual investors increase and professional investors reduce their aggregate buying activity following stock splits. This behavior supports the common practitioners' belief that stock splits help attract new investors and improve stock liquidity. The shift in clientele also influences return properties, price discovery, and asset prices: stocks exhibit stronger serial correlation after splits; stocks co-move more with the market index; and the introduction of new investors explains part of the positive post-split drift puzzle.

Keywords: Stock Splits, Clientele Change, Market Efficiency, Noise Trading, Investor Sophistication, Splits, Clientele Shift, Liquidity

JEL Classifications: G1, G3

Accepted Paper Series

Date posted: December 28, 2004 ; Last revised: September 21, 2009

Suggested Citation

Dhar, Ravi, Goetzmann, William N. and Zhu, Ning, The Impact of Clientele Changes: Evidence from Stock Splits. Yale ICF Working Paper No. 03-14; EFA 2005 Moscow Meetings Paper; AFA 2005 Philadelphia Meetings. Available at SSRN: http://ssrn.com/abstract=410104

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Contact Information

Ning Zhu (Contact Author) University of California, Davis - Graduate School of Management ( email ) One Shields Avenue Davis, CA 95616 United States 530-752-3871 (Phone) 530-752-2924 (Fax) HOME PAGE: http://www.gsm.ucdavis.edu/Faculty/Zhu/
Yale School of Management ( email ) 135 Prospect Street Box 208200 New Haven, CT 06520-8200 United States HOME PAGE: http://pantheon.yale.edu/~nz26/
China Academy of Financial Research (CAFR) 1954 Huashan Road Shanghai P.R.China, 200030 China
Ravi Dhar Yale School of Management - International Center for Finance ( email ) Box 208200 New Haven, CT 06520-8200 United States
William N. Goetzmann Yale School of Management - International Center for Finance ( email ) 135 Prospect Street P.O. Box 208200 New Haven, CT 06520-8200 United States 203-432-5950 (Phone) 203-432-8931 (Fax) HOME PAGE: http://viking.som.yale.edu
National Bureau of Economic Research (NBER) 1050 Massachusetts Avenue Cambridge, MA 02138 United States