Abstract
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. These positive reactions may be attributable to favorable signals and improved liquidity. We use the abnormal insider trading activity to assess the informativeness of the split signal. We find immaterial trading activities in the two months immediately before the split announcement, and abnormal trading activities in the post-announcement period. Our microstructural analysis shows that stock splits improve corporate liquidity. Regression analysis shows the presence of a possible signaling role for split announcements confounded by increased liquidity.
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