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Department of Applied Finance and Actuarial Studies

Seminar by Dr Philip Gharghori

Research Seminars - business and economics
  • Topic: Trading on stock split announcements and the ability to earn long-run abnormal returns
  • Speaker: Dr Philip Gharghori, Senior Lecturer, Department of Accounting and Finance, Monash University
  • Venue:E4A 623
  • When: 24th May, 2013, (Fri)
  • Time: 11.30am-12.30pm (Morning Tea from 11am)

The aim of this study is to examine why under reaction following stock split announcements persists over the long-term. To do so, we analyse long-run abnormal returns after split announcements over the period1975-2006. A significant abnormal return of 5% p.a. is observed over the entire dataset but this finding is not robust across sub-periods or segregations based on market cap. It is also documented that abnormal returns can be enhanced by focusing on splitting firms that have not split previously within the last three years. The key result of this study, which dominates all other findings,is that abnormal returns are conditional on whether firms split again in the next three years. Unsurprisingly, firms that split again perform very well int he year after the current split. However, for the roughly two-thirds of the sample that do not split again, the abnormal return is -11%. This suggests that the average long-term under reaction following stock split announcements is difficult to exploit.

View the full paper "Trading on stock split announcements and the ability to earn long-run abnormal returns" (PDF)



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