The market reaction to stock splits
Article Abstract:
In this paper, a model of market reaction to stock splits is presented and tested. We argue that the announcement of a split sets off the following chain of events. The market recognizes that, subsequent to the (reverse) split ex-day, the daily number of transactions along with the raw volume of shares traded will increase (decrease). This increase in volume results in an increase in the noisiness of the security's return process. The increase in noise raises the tax-option value of the stock, and it is this value that generates the announcement effect of stock splits. Empirical evidence using security returns, daily trading volume, and shareholder data strongly supports this theory. The evidence, in conjunction with this theory, also agrees with extant literature that splits result in decreased liquidity, but there is no evidence that this reduction in liquidity is priced. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1987
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When it's not the only game in town: the effect of bilateral search on the quality of a dealer market
Article Abstract:
We report results from experimental asset markets with liquidity traders and an insider where we allow bilateral trade to take place, in addition to public trade with dealers. In the absence of the search alternative, dealer profits are large - unlike in models with risk-neutral, competitive dealers. However, when we allow traders to participate in the search market, dealer profits are close to zero. Dealers compete more aggressively with the alternative trading avenue than with each other. There is no evidence that price discovery is less efficient when the specialists are not the only game in town. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1997
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Heteroskedasticity in stock return data.: volume versus GARCH effects
Article Abstract:
This paper provides empirical support for the notion that Autoregressive Conditional Heteroskedasticity (ARCH) in daily stock return data reflects time dependence in the process generating information flow to the market. Daily trading volume, used as a proxy for information arrival time, is shown to have significant explanatory power regarding the variance of daily returns, which is an implication of the assumption that daily returns are subordinated to intraday equilibrium returns. Furthermore, ARCH effects tend to disappear when volume is included in the variance equation. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1990
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