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Working Paper
Changes in trading activity following stock splits and their impact on volatility and the adverse information component of the bid-ask spread
This paper examines the changes in trading activity around stock splits, and its impact on both the volatility and the bid-ask spread. After a stock split, there is a significant increase in the volatility and the spread, even after controlling for the effects of microstructure biases like price discreteness and bid-ask bounce. The change in the number of trades is positively related to the change in total volatility, as well as to the temporary and permanent components of volatility. This suggests that the change in trading activity is associated with both informed and noise traders. The ...