Scandinavian Working Papers in Economics
UiS Working Papers in Economics and Finance,
University of Stavanger
No 2021/1: Market Reactions to Stock Splits: Experimental Evidence
John Duffy, Jean Paul Rabanal () and Olga Rud ()
Additional contact information
John Duffy: University of California
Jean Paul Rabanal: University of Stavanger, Postal: University of Stavanger, NO-4036 Stavanger, Norway
Olga Rud: University of Stavanger, Postal: University of Stavanger, NO-4036 Stavanger, Norway
Abstract: We report on an experiment studying market reactions to stock splits and reverse splits. In the first environment, two assets have increasing fundamental values, and one asset is subject to a 2-for-1 share split while the other is not. In the second environment, the fundamental values of both assets are decreasing, and one asset is subject to a 1-for-2 reverse split while the other is not. We find that share prices do not fully adjust to changes in fundamental values per share following both types of splits and we relate this phenomenon to difficulties that traders have with proportional thinking.
Keywords: Stock splits; behavioral finance
33 pages, September 29, 2021
Full text files
uis_wps_2021_01_duffy_rabanal_rud.pdfFull text
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