Skip to main content

The Tesla stock split experiment

Abstract

On August 11, 2020, at 16:59 EDT, Tesla announced a 5-for-1 stock split. The trading in the after-market and during the subsequent 2 days amounts to a unique financial economic experiment. Although stock splits have no fundamental impact on value, Tesla’s stock price rose 17.94% in the 2 days following the split—adding almost $50 billion in market value. This paper examines that price increases in detail and concludes there is no rational explanation for the size of the run-up following Tesla’s stock split announcement.

This is a preview of subscription content, access via your institution.

Fig. 1

Notes

  1. 1.

    Shiller’s most famous paper in this regard is Shiller (1981).

  2. 2.

    Calculations are based on 186.36 million shares outstanding.

  3. 3.

    See Bennett et al. (2020) for a recent contribution and the associated bibliography.

References

  1. Bennett, Benjamin, Rene M. Stulz, and Zexi Wang. 2020. Does joining the S&P 500 hurt firms. Retrieved September 1, 2020 from, http://papers.nber.org/tmp/75403-w27593.pdf.

  2. Fama, Eugene F., Lawrence Fisher, Michael C. Jensen, and Richard Roll. 1969. The adjustment of stock prices to new information. International Economic Review 10: 1–21.

    Article  Google Scholar 

  3. Huang, G.C., K. Liano, and M.S. Pan. 2009. The information content of stock splits. Journal of Empirical Finance 16: 557–567.

    Article  Google Scholar 

  4. Huang, G.C., K. Liano, and M.S. Pan. 2015. The effects of stock splits on stock liquidity. Journal of Economics and Finance 39: 119–135.

    Article  Google Scholar 

  5. Keynes, John M. 1936. The general theory of employment, interest and money. New York: Harcourt, Brace.

    Google Scholar 

  6. Roll, Richard. 1984. A simple implicit measure of the effective bid-ask spread in an efficient market. Journal of Finance 39 (4): 1127–1139.

    Article  Google Scholar 

  7. Shiller, Robert S. 1981. Do stock prices move too much to by justified by subsequent changes in dividends. American Economic Review 71 (3): 421–436.

    Google Scholar 

  8. Spence, Michael. 1973. Job market signaling. Quarterly Journal of Economics 87 (3): 355–374.

    Article  Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Bradford Cornell.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

I would like to thank Andrew Cornell, Shaun Cornell, Aswath Damodaran, Bala Dharan, Richard Gerger, Campbell Harvey and Jason Hsu for helpful comments.

Electronic supplementary material

Below is the link to the electronic supplementary material.

Supplementary material 1 (XLSX 70 kb)

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Cornell, B. The Tesla stock split experiment. J Asset Manag 21, 647–651 (2020). https://doi.org/10.1057/s41260-020-00191-0

Download citation

Keywords

  • Stock split
  • Tesla
  • Market efficiency