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Stock-Split Post-Announcement Returns: Underreaction or Market Friction?


  • We are grateful to Praveen Kumar, Sorin Sorescu and seminar participants at the University of Houston and the 2002 FMA annual meetings.

* Corresponding author: Wichita State University, W. Frank Barton School of Business, Department of Finance, Real Estate, and Decision Sciences, 1845 Fairmount, Wichita, KS 67260-0077; Phone: (316) 978-7125; Fax: (316) 978-3263; E-mail:


We explore the relationship between stock splits and subsequent long-term returns during the period from 1950 to 2000. We find that, contrary to much previous research, firms do not exhibit positive long-term post-split returns. Instead, we find that significant positive returns after the announcement date do not persist after the actual date of the stock split. We also observe that abnormal returns are correlated with the price-delay or market friction. We conclude that the stock-split post-announcement “drift” is only of short duration, and it is attributable to trading frictions rather than behavioral biases.