The Nuisance of Stock Distributions

29 Pages Posted: 3 Mar 2020

See all articles by Rong Guo

Rong Guo

SUNY at Binghamton - School of Management

Kristian Rydqvist

State University of New York at Binghamton - School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: February 4, 2020

Abstract

We re-examine the abnormal stock return over the ex-day of stock splits, stock dividends, and rights offers with an extended version of the model by Frank and Jagannathan (1998). Regression analysis suggests that an underlying nuisance cost in the amount of 0.57% of the stock price and a bid-ask bounce that occurs with probability 23% capture the essential cross-section variation in the abnormal stock return. Further analysis of bid and ask quotes questions the bid-ask-bounce interpretation. The nuisance cost of stock distributions decreases over time, and it vanishes with high-frequency trading. With the development of internet, share price management falls out of fashion, and stock distributions are no longer a concern.

Keywords: integer stock splits, fractional stock splits, rights offers, abnormal stock return, share price management

JEL Classification: G14, G24

Suggested Citation

Guo, Rong and Rydqvist, Kristian, The Nuisance of Stock Distributions (February 4, 2020). Available at SSRN: https://ssrn.com/abstract=3531999 or http://dx.doi.org/10.2139/ssrn.3531999

Rong Guo

SUNY at Binghamton - School of Management ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States

Kristian Rydqvist (Contact Author)

State University of New York at Binghamton - School of Management ( email )

P.O. Box 6015
Binghamton, NY 13902-6015
United States
607-777-2673 (Phone)
607-777-4422 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
15
Abstract Views
220
PlumX Metrics