Does Volatility Decrease After Reverse Stock Splits?
Author InfoJennifer L. Koski Abstract Previous research documents that volatility decreases after reverse stock splits. I show that measurement effects bias observed volatility, especially for lower priced stocks. Based on observed returns, volatility decreases 25% after reverse splits. Controlling for bid-ask bounce, volatility still decreases for stocks with prices above $5.00. However, for stocks below $2.00, volatility increases slightly. The portion of observed volatility attributable to measurement effects declines as the stock price increases and as the minimum tick size decreases. Finally, there is a significant and positive cross-sectional relation between changes in the number of trades and changes in volatility after reverse splits. 2007 The Southern Finance Association and the Southwestern Finance Association. Download InfoTo download: If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be cont
