Document Type
Article
Publication Date
2019
Abstract
Is it possible for investors to earn above average returns by acting on public information regarding forward and reverse stock split announcements? The purpose of this study is to utilize the risk adjusted event study methodology to test the magnitude and timing of any effect that a forward or reverse stock split announcement has on a firm’s stock price. By analyzing the market reactions of 50 NYSE or NASDAQ stock splits - 25 forward splits and 25 reverse splits - and comparing them to the corresponding dates’ S&P 500 performance, it is possible to determine if investors have the ability to earn above average returns on public announcements. The results suggest that an investor would not be able to make atypical returns on the announcement of forward or reverse stock splits, supporting semi-strong form market efficiency. However, the results do highlight the stock prices moving in an opposite manner of the expected trend several days following the event, suggesting a correction to a market overreaction.
Recommended Citation
Spradlin, Kate, "Forward and Reverse Stock Splits: A Test of Market Efficiency" (2019). Longwood Senior Theses. 21.
https://digitalcommons.longwood.edu/senior_theses/21
Comments
Faculty Advisor: Dr. Frank Bacon