Stock splits, liquidity, and information asymmetry : an empirical study on Tokyo Stock Exchange

股票分拆, 流動性, 及資訊不對稱性 : 東京股票交易所實證分析

Student thesis: Doctoral Thesis

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  • Fang GUO

Related Research Unit(s)


Awarding Institution
  • Lun Cheung Edwin LAI (Supervisor)
  • Jun CAI (Supervisor)
Award date3 Oct 2006


This study investigates effects brought by stocks splits on market characteristics and tries to give an explanation to results referring to existing hypotheses and previous empirical results of other researchers. I investigate changes on trading activity, volatility, liquidity, information asymmetry and the investors’ behavior around the stock split. The observation on the trading activity find increase one transactions reached at ask and more participation of small-amount investors. The result supports the signaling hypothesis, trading range hypothesis, and tick size hypothesis. The volatility when measured by inter-daily trading data shows no significant change but is significantly decreased when measured by intra-daily trading one. The result is supportive to the trading range hypothesis which predicts the increasing market’s stabilization. The result about liquidity effects shows that the liquidity is enhanced after stock splits. So the liquidity enhancement assumption predicted by the trading range hypothesis is supported by the empirical evidence. The result about information asymmetry shows that the adverse-selection component of the bid-ask spread decreases significantly after stock splits. And it supports the signaling hypothesis that predicts the reduction of information asymmetry due to the revelation of private information to the public after splits. The change of the information environment can be explained by the increase in noise trading that will reduce the adverse-selection component. The result on investors’ behavior shows that the appearance of both uninformed traders and informed traders increase significantly after stock splits. This finding supports the trading range hypothesis. The fact that the decrease on probability of informed trading (PIN) can explain the previous observation on trading activity, volatility, liquidity, and information asymmetry.

    Research areas

  • Stock exchanges, Japan, Stock splitting, Disclosure of information, Liquidity (Economics)