Stock-Split Post-Announcement Returns: Underreaction or Market Friction?

22 Pages Posted: 18 Nov 2007

See all articles by Rodney D Boehme

Rodney D Boehme

Wichita State University - Department of Finance, Real Estate & Decision Sciences (FREDS)

Bartley R. Danielsen

North Carolina State University - Poole College of Management

Abstract

We explore the relationship between stock splits and subsequent long-term returns during the period from 1950 to 2000. We find that, contrary to much previous research, firms do not exhibit positive long-term post-split returns. Instead, we find that significant positive returns after the announcement date do not persist after the actual date of the stock split. We also observe that abnormal returns are correlated with the price-delay or market friction. We conclude that the stock-split post-announcement "drift" is only of short duration, and it is attributable to trading frictions rather than behavioral biases.

Suggested Citation

Boehme, Rodney D and Danielsen, Bartley R., Stock-Split Post-Announcement Returns: Underreaction or Market Friction?. The Financial Review, Vol. 42, No. 4, pp. 485-506, November 2007. Available at SSRN: https://ssrn.com/abstract=1030858 or http://dx.doi.org/10.1111/j.1540-6288.2007.00180.x

Rodney D Boehme (Contact Author)

Wichita State University - Department of Finance, Real Estate & Decision Sciences (FREDS) ( email )

Wichita, KS 67260-0078
United States

Bartley R. Danielsen

North Carolina State University - Poole College of Management ( email )

Hillsborough Street
Raleigh, NC 27695-8614
United States
919-513-3003 (Phone)

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