Measurement effects and the variance of returns after stock splits and stock dividends |
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Authors: | Koski JL |
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Institution: | Department of Finance and Business Economics, School of Business Administration, Box 353200, University of Washington, Seattle, WA 98195-3200, USA. E-mail: jkoski@u.washington.edu |
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Abstract: | This article examines the relation between two factors affectingstock returns, the bid-ask spread and price discreteness, andthe increase in return variance after ex-dates of stock splitsand stock dividends. Controlling for these effects, the varianceof daily returns still increases significantly. The varianceof weekly returns also increases significantly, and the varianceof returns for a control sample of nonsplitting firms showsno significant increase. Variance ratio tests show that bid-askerrors are small for these stocks and therefore cannot explainthe large increase in variance. Spreads and price discretenessdo not explain increased variance after stock distributions. |
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