The post‐split increase in daily returns volatility is less for AMEX stocks than for NYSE stocks. The exchange trading location is a significant factor in explaining the volatility shift even after stock price and firm size are considered. Furthermore, when measured on a weekly basis, there is no increase in AMEX stocks' returns volatility. These results suggest that measurement errors created by bid‐ask spreads and the 1/8 effect, and also one or more of the elements that make the NYSE different from the AMEX, explain why the estimated volatility of daily stock returns increases after the ex split date.
The post-split increase in daily returns volatility is less for AMEX stocks than for NYSE stocks. The exchange trading location is a significant factor in explaining the volatility shift even after stock price and firm size are considered. Furthermore, when measured on a weekly basis, there is no increase in AMEX stocks' returns volatility. These results suggest that measurement errors created by bid-ask spreads and the 1/8 effect, and also one or more of the elements that make the NYSE different from the AMEX, explain why the estimated volatility of daily stock returns increases after the ex split date.OHLSON AND PENMAN (1985) provide evidence that NYSE stock returns variances increase subsequent to ex stock distribution days for splits of 100% or greater. The increase in volatility is independent of the size of the split alnd the post split price. Seven potential problems that might affect their results are analyzed and rejected.1Ohlson and Penman (1985) suggest that the greater post-split volatility may be due to the activity of relatively ignorant noisy traders who prefer trading low-priced stocks (this "clientele factor" is attributed to Black (1986, pg. 534)) and "institutional factors" (a rather broad category that incorporates measurement problems created by the "1/8 effect" and bid-ask spreads) as possible hypotheses for the post split volatility increase. This paper extends Ohlson and Penman's (1985) analysis to AMEX stocks. Exchange listing can serve as a proxy for several real factors that may cause the increase in post-split variance, many of which are related to the clientele factor and institutional factors cited above. If the increase in volatility differs between NYSE and AMEX stocks, it will suggest that one (or more) of the following contributes to the phenomenon: a) Attributes of the stock and/or company. AMEX stocks are smaller and lower priced than NYSE stocks. Shares of low priced and small sized firms are characterized by wider bid-ask spreads (see Roll (1984) and *Associate Professor, Texas A&M University. The author thanks S. Kannan, S. Lummer, A. Mahajan, D. Mayers, R. Stulz, and an anonymous referee for helpful comments. 1Ohlson and Penman's (1985) paper has also spurred subsequent work on smaller sized distributions and reverse splits (Dravid (1987)), and on split-related beta shifts (Brennan and Copeland (1988)). However, the source of the volatility-stock split relationship still remains a mystery. 421 422 The Journal of Finance Research 9, 291-302. Brennan, Michael J. and Thomas E. Copeland, 1988, Beta changes around stock splits: A note,
Firm announcements of adoption of the multidivisional (M‐form) structure are evaluated using stock market data and event methodology. Results indicate that investors positively value M‐form adoption. Furthermore, some support is found for the hypothesis that firm diversification strategy (related versus unrelated) is contingently related to investors' valuation of M‐form implementation.
Investors can exploit the correlations between international stock markets by trading no-load, open-end, international mutual funds. These investors in effect cheat passive investors because they buy the mutual funds at their net asset values, which do not reflect information released during the US trading day. The strategy we examine yields an annual rate of return 800 basis points above the S&P500, over a period of almost eight years. Copyright Blackwell Publishers Ltd 1998.
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