The impact of stock split handling rules on returns: Evidence from Canada

✍ Scribed by Brian F. Smith; Yunhua Zhu

• Publisher: Wiley (John Wiley & Sons)
• Year: 2010
• Tongue: English
• Weight: 228 KB
• Volume: 28
• Category: Article
• ISSN: 0825-0383
• DOI: 10.1002/cjas.116

✦ Synopsis

Abstract

Canadian and US stock split handling rules differ. In the US, buying shares is inconvenient before the ex‐date. In Canada, sellers face a miniscule probability of a big loss if the split is cancelled between the ex‐date and payable date. On the ex‐date, Canadian stock returns are positive and the proportion of seller‐initiated trading declines. After the payable date, returns are negative and the proportion of seller‐initiated trading increases. For cross‐listed shares, effects of US and Canadian rules are offsetting as returns are insignificant. We conclude that rules associated with a remote possibility of large losses affect investor behaviour. Copyright © 2010 ASAC. Published by John Wiley & Sons, Ltd.