Roger's 1997 Short Picks Message Board

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Strategies & Market Trends : Roger's 1997 Short Picks

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To: Pancho Villa who wrote (7061)	11/17/1997 12:04:00 AM
From: hasbeen101	Read Replies (2) of 9285

>> The stock split is just a paper transaction ... Academicians say this should not be the case. fundamentals dirve stock prices not paper transsactions such as stock dividends ... All this BS being said, I never short a stock if a split is coming, even if it is a dog traders are not as smart as Professors Sharpe/fama believe.>> Pancho, I was at a conference last week when I discussed this very issue with a "Rocket Scientist" from a quant consulting company. He pointed out that, even though the fundamental value is unaffected by a split, there are a couple of effects that are subtle but significant: 1. Liquidity is enhanced by a split; and 2. There is an "information effect" similar to directors increasing dividends. The split communicates that the management and directors (probably) have inside information that is bullish for the stock. So "Split mania" is not necessarily in conflict with academic theory. In fact, the theory provides some explanation. Obviously, one way for management and directors to hype a weak stock is to announce a split, falsely implying that they have bullish inside information.

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