Abstract

http://ssrn.com/abstract=55062
 
 

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Changes in Trading Activity Following Stock Splits and Their Effect on Volatility and the Adverse Information Component of the Bid-Ask Spread


Anand S. Desai


Kansas State University

Mahendrarajah Nimalendran


University of Florida - Department of Finance, Insurance and Real Estate

Subu Venkataraman


Morgan Stanley


Journal of Financial Research, Summer 1998

Abstract:     
We examine changes in trading activity around stock splits, and their effect on the volatility and the adverse information component of the bid-ask spread. Even after controlling for microstructure biases, we find a significant increase in the volatility after the split. Changes in total volatility and in its permanent component are positively related to changes in the number of trades. This suggests that both informed and noise traders contribute to changes in trading activity. Further, while the adverse information component of the spread increases unconditionally after the split, the change is negatively related to the change in trading activity. The results suggest that a crucial determinant of liquidity changes after a stock split is the success of the split in attracting new trades in the security.

JEL Classification: G12, G14

Accepted Paper Series





Not Available For Download

Date posted: April 18, 1998  

Suggested Citation

Desai, Anand S. and Nimalendran, Mahendrarajah and Venkataraman, Subu, Changes in Trading Activity Following Stock Splits and Their Effect on Volatility and the Adverse Information Component of the Bid-Ask Spread. Journal of Financial Research, Summer 1998. Available at SSRN: http://ssrn.com/abstract=55062

Contact Information

Anand S. Desai
Kansas State University ( email )
110 Calvin Hall
Manhattan, KS 66506
United States
785-532-6892 (Phone)
785-532-7024 (Fax)
Mahendrarajah Nimalendran
University of Florida - Department of Finance, Insurance and Real Estate ( email )
P.O. Box 117168
Gainesville, FL 32611
United States
352-392-9526 (Phone)
352-392-0301 (Fax)
Subu Venkataraman
Morgan Stanley ( email )
1585 Broadway
New York, NY 10036
United States
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