An Empirical Study of Stock Split Announcements of Select BSE Sectors Using Event Study Methodology

Abstract

This study examines the stock market reaction to stock splits between 2002 and 2013 of 6 sectors of BSE-Auto, Bankex, Consumer Durables, FMCG, Health Care and IT sectors to find out if the Indian stock market is semi-strong efficient or not. The methodology used is event study under the market model. Samples of 14 stock splits are considered spread across 6 sectors. The results indicate that there are significant positive abnormal returns prior to split announcements. On the day of split announcement, 1 sector reacts positively (Health Care-3.3%) and the 5 react negatively (Auto -1%, Bankex -0.9%, CD -0.3%, FMCG -1%, and IT-1%). The results indicate that the null hypothesis, H 0 1, that there is no significant AAR around the stock split announcement dates is accepted.