The Permanent and Temporary Effects of Stock Splits on Liquidity in a Dynamic Semiparametric Model
(2025) Journal of Business and Economic Statistics — (2025)
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- Abstract
- We develop a dynamic framework to detect the occurrence of permanent and transitory breaks in the illiquidity process. We propose various tests that can be applied separately to individual events and can be aggregated across different events over time for a given firm or across different firms. We use this methodology to study the impact of forward and reverse stock splits on the illiquidity dynamics of the S&P 500, S&P 400, and S&P 600 index stock constituents. Our empirical results show that stock splits have a positive and significant effect on the permanent component of the illiquidity process while a majority of the stocks engaging in reverse splits experience an improvement in liquidity conditions.
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Citations
Hafner, C., Linton, O. B., & Wang, L. (2025). The Permanent and Temporary Effects of Stock Splits on Liquidity in a Dynamic Semiparametric Model. Journal of Business and Economic Statistics. Accepted/in-press. https://doi.org/10.1080/07350015.2025.2551246 (Original work published 2025)