another paper they don't cite
https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261.1988.tb02618.x
Can the Market Multiply and Divide? Non-Proportional Thinking in Finan
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they never claim to have discovered splits results?
Finally, we note that some of the basic empirical facts collected in this paper have been individually shown in previous research. However, the previous literature has often presented these
facts as puzzles in the data. For example, an increase in volatility following splits was discussed
in early work by Ohlson and Penman (1985), and the general negative relation between price and
volatility is well-known in the asset pricing literature (e.g., Black, 1976). Our contribution is to oer
a new explanation that uni es a large number of facts and puzzles, and to cast doubt on supposedly
robust facts, such as the view that size is a fundamental determinant of risk. With a model of
non-proportional thinking in mind, we can also present a more targeted set of empirical tests to
distinguish our hypothesis from potential alternative explanations. -
Their main and better identified (come on, running cross sectional regressions like that is stupid) empirical result on stock splits is lifted from an old series of JF-JFE papers that they don't even cite.
Take a look at Figure 2 of Dubofsky's 1991 JF. Brennan and others also had papers showing the same kind of effect around splits. But, they had a plausible theory in mind for why this might happen (more retail attracted, as broker fees were assessed as an absolute amount per share).That's a pretty bad missed citation.
Figure 9 in the NBER WP doesn't show a discontinuity in retail ownership. I don't know if we should be looking at levels vs. rates of change, though.
To the extent that retail ownership is a function of absolute share prices, it sounds like the retail ownership story would actually support their claim that the relationship between volatility and market cap is driven by share price, just with an institutional mechanism rather than a behavioral one.
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ok I had not even read this part, it's clearly written by corporate finance reg monkeys who probably never took an asset pricing class. you can read it as "we haven't found any new result, but we rigged a behavioral model to give us the results other people found"
great paper!
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Their main and better identified (come on, running cross sectional regressions like that is stupid) empirical result on stock splits is lifted from an old series of JF-JFE papers that they don't even cite.
Take a look at Figure 2 of Dubofsky's 1991 JF. Brennan and others also had papers showing the same kind of effect around splits. But, they had a plausible theory in mind for why this might happen (more retail attracted, as broker fees were assessed as an absolute amount per share).That's a pretty bad missed citation.
Figure 9 in the NBER WP doesn't show a discontinuity in retail ownership. I don't know if we should be looking at levels vs. rates of change, though.
To the extent that retail ownership is a function of absolute share prices, it sounds like the retail ownership story would actually support their claim that the relationship between volatility and market cap is driven by share price, just with an institutional mechanism rather than a behavioral one.That's also a result from the previous literature (Brennan)