Transaction Size, Order Submission and Price Preferences Around Stock Splits

38 Pages Posted: 12 Jan 2003

See all articles by José Yagüe

José Yagüe

University of Murcia

J. Carlos Gómez Sala

University of Alicante - Department of Financial Economics

Date Written: November 2002

Abstract

We analyse the effect of splits on stock liquidity. The results show a drop in trading volume and depth and an increase in the relative bid-ask spread. We detect a change in trading composition, with an increase in the smallest transactions, mainly on the buyer side of shares whose prices fall significantly after the split. The information asymmetry does not diminish, given that the adverse selection component of the effective spread reduces only insignificantly for the full sample. Finally there are not significant changes in the percentage of orders that provide liquidity to the market. These findings indicate that splits, despite higher transaction costs, encourage the entry of small investors attracted by the lower stock prices.

Keywords: Splits, trading activity, liquidity, microstructure

JEL Classification: G19, G32, G35

Suggested Citation

Yagüe, José and Gomez Sala, Juan Carlos, Transaction Size, Order Submission and Price Preferences Around Stock Splits (November 2002). Available at SSRN: https://ssrn.com/abstract=348961 or http://dx.doi.org/10.2139/ssrn.348961

José Yagüe

University of Murcia ( email )

Department of Management and Finance
Campus de Espinardo s/n
Murcia, 30100
Spain
+34 868883862 (Phone)
+34 868887537 (Fax)

Juan Carlos Gomez Sala (Contact Author)

University of Alicante - Department of Financial Economics ( email )

Ctra. S. Vicente s/n
03690-S. Vicente del Raspeig
Alicante, San Vicente del Raspeig - Alicante 03690
Spain
+34 965909309 (Phone)
+34 965903621 (Fax)

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