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Technology Stocks : America On-Line (AOL)
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To: Dr. D who wrote (998)1/3/1999 5:07:00 PM
From: Sowbug  Read Replies (4) of 41369
 
Otherwise, would you buy 100 shares of Aol @ 160.00 on Friday if it were to split Monday, and you still only had 100 shares @ 80.00 on Monday.

No. The record date is irrelevant to splits. The seller of a security on the open market sells all the rights pertaining to the security, such as rights to receive cash dividends, stock dividends, or whatever. So a split has no effect on the liquidity or value of a share of stock.

This question gets asked a lot on SI, and unfortunately there's a lot of misinformation about it. I'd like to hear from a real person who traded around the time of a split and (in the case of a buyer) immediately lost half/a third/two-thirds of his or her investment, or (in the case of the seller) found to his or her delight that he or she had just duped the buyer into buying something worth much less than the sale price. I would be astonished if such a person existed.

Think about it -- if it were true that there were some special catch to trading during the few weeks between the record and distribution date, why would volume in the stock be anything greater than zero during that time? Who would pay $160 for a share worth $80? And if it were true that the declaration of a split eliminiated liquidity of a stock, why would any company ever declare a split?
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