Examining the effect of stock volatility on the relationship between stock split and stock market performance

Abstract

The effect of stock volatility on the relation between stock split and stock market performance is puzzling. This paper examines volatility as a factor that affects the relationship between stock split and stock market performance. The data are gathered from the Egyptian Stock Exchange-listed companies, based on their market capitalization from all sectors in Egypt from 2010 to 2020. This event study employs multiple regression analysis. volatility is measured by standard deviation. The announcement date is considered for stock split as the independent variable. Also, firm size, split factor, and Industry type as control variables have been tested in the model. The research is an event study; The time window is based on twenty days and five days. Results indicate that volatility as a moderator positively affects the relationship between stock split and stock market performance for five- and twenty days time windows. A robustness check has been performed for every regression model. Showing the significant effect of volatility as moderator, measured by standard deviation, on the relationship for the sample period between 2010 and 2020 for twenty days’ time window. Results support the easiness and enhance the process of the stock split. For example, Financial Regulator Authority could waive its approval for the stock split to companies’ general assembly as the market would correct itself for disturbance in volatility after the stock split announcement. Also, Minimizing the number of companies that don't execute stock splits affects the investors’ behavior which affects the relationship between stock split announcements and stock market performance.