The Market Reaction to Stock Splits and Capitalization Issues: Recent JSE Experience

Positive abnormal returns of stocks which are split and stocks for which stock dividends are distributed have been reported for shares traded in the NYSE. Evidence also exists of an increase in the volatility of returns following the split. This paper provides evidence that stocks traded on the JSE have also provided abnormal returns following splits or capitalisation issues, and that the variability of returns and the “beta coefficient” of these stocks rose after the announcement of these events. We suggest some explanations of the above phenomena in the context of the South African stock market.