Event Study of Stock Splits

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EVENT STUDY OF STOCK SPLITS Final Project Report of Investment Banking & Financial Services (IBFS) February 2016 Submitted to: Prof. A.K. Mishra Submitted by: Group 3, Section A DHEERAJ MADAAN(Mob- +91 7523849812) | PGP30193 | HARI SINGH CHOUDHARY | PGP30198 | RITIN KAKKAR | PGP30390 | ROHAN SARAF | PGP30219 | SAKSHI SONI | PGP30392 | | | Indian Institute of Management, Lucknow Contents Data 3 Sample 3 Methodology 4 Alpha and Beta Estimation 4 Event Study 4 Hypothesis & Objective 5 Testing & Results 5 Alpha and Beta calculation 5 Event Study 6 Stock Split 7 Reverse Stock Split 8 Conclusion 8 Data 1. This study includes samples of 19 companies that made a stock split…show more content…
5. Alpha is estimated as the intercept while beta is the X-coefficient. Event Study 1. Historical prices for both the firms and BSE 500 were collected during the event period from day -60 to day +60, and Day 0 being the announcement day. 2. Actual return was calculated for all the companies as well as for the BSE 500 on the event period days (-60 to +60). 3. The expected return for each firm was calculated: Expected Return = Alpha + (Beta x BSE 500 actual return). 4. Excess Return was obtained from the difference between Actual and Expected Return. Excess Return = Actual Return – Expected Return 5. Average Excess Return (for the Event period) was calculated as: Average Excess Return (AER) = Total Excess Return / n (number of firms in the sample) 6. Cumulative Average Excess Return for the event period (Day -60 to Day +60) was calculated by adding the AER for each day in the event period. 7. Hypothesis Testing: The formulated hypothesis in the study that whether abnormal returns are generated by stock split was tested by conducting paired sample t test using SPSS for the sample of companies for period ranging from -60 to +60 days. The two variables compared were the normal returns and the expected returns ( based on BSE returns) Hypothesis & Objective Our aim is to ascertain the impact of the announcement of a split/reverse split. We analyze whether a split/reverse split announcement can cause abnormal
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