Evidence shows stock splits tend to increase stock prices

Ferroh

member

Activity: 111

Merit: 100

Quote from: Littleshop on July 03, 2013, 05:17:17 PM

Quote from: empoweoqwj on July 01, 2013, 01:59:06 AM

Except bitcoin isn't a stock.

Right. And stocks are NOT divisible so if you want to buy Apple you need $400+ for one share. While this does not cause most investors problems, it prevent some purchases.

Bitcoin is already divisible. It does not need to be split as it can already be split by the user.

The price increase effect is due to investor psychology, not due to some tiny investors being able to buy $200 worth of shares. Even if a 100000 people bought 1 share each because apple split from $400 to $200 it wouldn't have a very significant effect on AAPL.

I think OP has a good point.

Littleshop

legendary

Activity: 1386

Merit: 1004

Quote from: empoweoqwj on July 01, 2013, 01:59:06 AM

Except bitcoin isn't a stock.

Right. And stocks are NOT divisible so if you want to buy Apple you need $400+ for one share. While this does not cause most investors problems, it prevent some purchases.

Bitcoin is already divisible. It does not need to be split as it can already be split by the user.

amincd

hero member

Activity: 772

Merit: 501

Stocks are different from bitcoins in a few ways. The differences most relevant to this issue are:

You can't buy fractions of stocks, whereas you can with bitcoin. This is a strike against changing the standard unit of account to mBTC.
Bitcoins are used as a currency, whereas stocks are not. This is a strike for changing to mBTC.

They're similar in many ways too. Most importantly, the price displayed for the standard of account in both stocks and BTC will have a psychological effect on investors. If the quoted price for bitcoin was the price of a mBTC, I would bet financial commentators would be arguing that bitcoin, at $0.10, is still cheap, instead of claiming it's expensive.

empoweoqwj

hero member

Activity: 518

Merit: 500

Except bitcoin isn't a stock.

amincd

hero member

Activity: 772

Merit: 501

This may be relevant to the potential change of Bitcoin's standard unit of account from BTC to mBTC. Studies on the price of stocks that experienced stock splits shows that splits tend to have a positive effect on price:

http://www.jstor.org/discover/10.2307/2331396?uid=3739400&uid=2129&uid=2&uid=70&uid=3737720&uid=4&sid=21102419251081

Quote

We observe significant post-split excess returns of 7.93 percent in the first year and 12.15 percent in the first three years for a sample of 1,275 two-for-one stock splits. These excess returns follow an announcement return of 3.38 percent, indicating that the market underreacts to split announcements. The evidence suggests that splits realign prices to a lower trading range, but managers self-select by conditioning the decision to split on expected future performance. Presplit runup and post-split excess returns are inversely related, indicating that our results are not caused by momentum.

http://www.efmaefm.org/efma2006/papers/712910_full.pdf

Quote

Although stock splits seem to be purely cosmetic, there is ample empirical evidence that they are associated with abnormal returns. This study analyzes the effect of stock splits using intraday data and insider trading data in Hong Kong from 1980 to 2000. Consistent with the findings of other countries, we observe positive price reactions in Hong Kong.

Topic: Evidence shows stock splits tend to increase stock prices (Read 4645 times)