An empirical study on price pressure and liquidity effect of stock split announcement” - Evidence from Indian market Prof. Suresha B*,**, Dr. Naidu Gajendra***,**** *Assistant Professor, Christ University, Bangalore **Research Scholar, Rayalaseema University, Kurnool, AP ***Professor, Audens Business School, Bangalore ****Research Supervisor, Rayalaseema University, Kurnool, AP Online published on 30 September, 2013. Abstract This paper investigates the market reaction to stock split announcement news, using an event study methodology for Nifty stocks from 1995 to 2011. There are several theories that have been advanced to explain why companies go for stock split. In previous studies, it is evident that stock returns are significantly affected negatively or positively around stock split announcement dates. Informed investors market wealth is affected to a greater extent around this event. The purpose of this study is to test whether the investor can gain or lose an above normal return by relying on public information impounded in a stock split announcement. Using risk adjusted event study methodology, this study tests where there is excessive abnormal return exists during event window of announcement. stock split sample observations S&P Nifty INDEX were analyzed using standard risk adjusted event study methodology. The event study methodology was employed in the determination of the effects of the stock split. Abnormal returns were calculated by using market model and t-tests were conducted to test the significance. We find the existence of significant positive abnormal returns on AD 0, but under a short run of AD+3 abnormal returns do not persist and dilutes to its normal return. The study found out that the Indian market reacts positively to stock splits. The study also shown an increase in volumes of shares traded around the stock splits date. There is also an increase in trading activity after the stock split announcement as compared to that before the announcement. Top Keywords Abnormal returns, market reaction, event study methodology. Top |