Stock splits: implications for investor trading costs

Stephen F. Gray*, Tom Smith, Robert E. Whaley

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)


Stock splits are known to have a negative effect on market quality-while stock prices adjust consistently with the split's scale, the bid/ask spread and market depth do not. Two possible explanations for the relative increase in spread are that (i) splits cause an increase in market maker costs that are passed along to investors or (ii) splits provide a mechanism for market makers to increase excess profits. Using a robust econometric methodology, we find evidence of the latter, which raises questions about the motivation of the splitting practice. We also document that while NASDAQ spreads appear to adjust more fully than those of NYSE/AMEX stocks, NASDAQ spreads are higher in general.

Original languageEnglish
Pages (from-to)271-303
Number of pages33
JournalJournal of Empirical Finance
Issue number3
Publication statusPublished - May 2003
Externally publishedYes


  • investor trading costs
  • stock splits


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