Today, Tom Sosnoff and Tony Battista ask if there is anything special about a stock split to warrant buying in anticipation of it “filling the gap” back to its old price.
In one of the largest backtest of its kind, the research team analyzes 500 stock splits for the years 2006 to 2014 to discover if stocks with splits outperform the S&P 500. Specifically they examined the performances over 1 week, 1 month, and 6 months and compare this to the S&P 500 as a baseline. The findings are opposite of conventional wisdom – prices perform as well as the market over the short-term, but underperform over longer periods. After 6 months only 43% of the stocks with splits outperformed the S&P 500.
Excited by their results, the research team also examined these same stocks to discover how implied volatility reacted to the post-split market. The second study found that IV decreased in 66% of stocks after their split with a median decrease of 9% in volatility.
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