New Evidence of Stock Split When Uncertain Event Window is Identified

Abstract

The stock split is a popular practice in many markets despite the fact that it does not fundamentally change the value of the firm. Many past evidences supported the liquidity hypothesis and found positive abnormal return around stock split date. However, all studies employed traditional event studies methodology and defined the event date as either the announcement date or effective date. Drawback of the traditional method is the incapability to detect the impact when the event date is uncertain. This paper uses the new approach called EVARCH that can uncover the event window from the data. In addition, it takes the possible impact of stock split on stock's systematic risk and variance into account. New evidence from the Stock Exchange of Thailand during 2001-2005 reveals that there is no significant positive abnormal return. However, the study finds that the corporate might use stock split as a 'signal' of future capital increase to alleviate negative impact.

Keywords: stock split, event study, garch, thailand, uncertain event date

JEL Classification: G14