Re:Insider Trader Had All the Answers
by MassPikeMike on Friday October 04, 2024 @10:03PM
(#41747178)
In theory you are right that stock splits have no bearing on returns, but in practice it is well documented (see e.g. [1]) that "stock splits and reverse splits often result in short-term abnormal returns even though such split events do not change any fundamental factors affecting the valuation of a firm's stock."
[1] https://www.sciencedirect.com/science/article/pii/S016726812...
> We provide evidence that the incomplete adjustment of share prices to splits or reverse splits can be attributed to heterogeneity in traders' cognitive abilities.
What a colorful turn of phrase.
Re:Insider Trader Had All the Answers
by genocidicbunny on Saturday October 05, 2024 @12:45AM
(#41747789)
The split was followed by the stock very quickly regaining it's previous per share value over the course of the trading day, though maybe it was over the next week; this was a few decades ago.
And i agree that he shouldn't have told me. A few years later i actually told him something along those lines. I appreciated it but he exposed himself to a lot of legal risk.
That family friend seems like a complete idiot for passing on that information.
Plus a stock split on its own has no change to the value of a stock. There’s no reason for it to double overnight. In fact the direct effect on the price is the opposite as you have twice (or K times) as many shares and each is worth half (or 1/K). So the net effect is zero.