Market Reaction Around the Stock Splits and Bonus Issues: Some Indian Evidence
24 Pages Posted: 25 Jan 2008
Date Written: January 24, 2008
It is often argued that stock splits and bonus issues are purely cosmetic events. However, many studies have found numerous stock market effects associated with bonus issues and stock splits. This paper examines the effects of these two types of events for the Indian stock market. We use the event study methodologies. The abnormal returns are calculated using the Capital Asset Pricing Model and then t-tests are conducted to test the significance. Consistent with the existence literatures, the two events are associated with significantly positive announcement effect. For bonus issues, the abnormal returns were about 1.8% and for stock splits, it was about 0.8%. On a whole, the paper finds evidence of semi-strong form efficiency in the Indian stock market.
Keywords: Stock split, Bonus Issue, Capital Market Efficiency, Efficienct Market Hypothesis, Event Study, Capital Asset Pricing Model, t-Test, Abnormal Return, Semi Strong Market Effciency
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