Market Reaction on Reverse Stock Split Announcement: Empirical Evidence in Indonesian Stock Market

Edwin Hendra, Theresia Lesmana, Sasya Sabrina

2019

Abstract

This research focuses on reverse stock split announcements. We are trying to examine stock returns behavior on days prior and following the reverse split announcements. The sample of this study is reverse stock split events on an Indonesian stock market within the year of 2002-2018. An earlier abnormal stock price movement before the announcement shows a sign of insider trading existences, and a delayed abnormal stock price movement following the announcement shows a slow respond of market reaction to particular new information. We are using cumulative abnormal return (CAR) and cumulative market-adjusted return (CMAR) to identify the abnormal stock price movement. The results show that there are positive abnormal returns before the announcement, and then it declines further into negative abnormal returns until post the announcement. However, when we segregate the sample into four price fractions, we find positive abnormal returns patterns only appear on two-five thousand rupiahs price fraction. Meanwhile, the other price fraction categories show declining patterns of negative abnormal returns. Overall, we temporarily suggest that there are illegal insider trading activities in the Indonesian Stock Market. The immediate market reactions show that the market is quite efficient, and its responses regarding the reverse stock split event follow the prediction of the trading range hypothesis.

Paper Citation

in Harvard Style

Hendra E., Lesmana T. and Sabrina S. (2019). Market Reaction on Reverse Stock Split Announcement: Empirical Evidence in Indonesian Stock Market. In Proceedings of the 2nd Economics and Business International Conference - Volume 1: EBIC, ISBN 978-989-758-498-5, pages 154-161. DOI: 10.5220/0009200601540161

in Bibtex Style

@conference{ebic19,
author={Edwin Hendra and Theresia Lesmana and Sasya Sabrina},
title={Market Reaction on Reverse Stock Split Announcement: Empirical Evidence in Indonesian Stock Market},
booktitle={Proceedings of the 2nd Economics and Business International Conference - Volume 1: EBIC,},
year={2019},
pages={154-161},
publisher={SciTePress},
organization={INSTICC},
doi={10.5220/0009200601540161},
isbn={978-989-758-498-5},
}

in EndNote Style

TY - CONF

JO - Proceedings of the 2nd Economics and Business International Conference - Volume 1: EBIC,
TI - Market Reaction on Reverse Stock Split Announcement: Empirical Evidence in Indonesian Stock Market
SN - 978-989-758-498-5
AU - Hendra E.
AU - Lesmana T.
AU - Sabrina S.
PY - 2019
SP - 154
EP - 161
DO - 10.5220/0009200601540161