Editing Stock split (section)

==Effects==
The main effect of stock splits is an increase in the [[Market liquidity|liquidity]] of a stock:<ref>{{Cite web|last=Saldanha|first=Ruth|date=August 18, 2020|title=What is a Stock Split?|url=https://www.morningstar.ca/ca/news/204805/what-is-a-stock-split.aspx|access-date=August 19, 2020|website=Morningstar.ca}}</ref> there are more buyers and sellers for 10 shares at $10 than 1 share at $100. 
Some companies avoid a stock split to obtain the opposite strategy: by refusing to split the stock and keeping the price high, they reduce trading volume. [[Berkshire Hathaway]] is a notable example of this. As of 2023, the company has never split its stock and trades at over US$500,000.

One possible explanation for increased trading volume is confusion. If some investors are unable to recognize that a split stock should trade at a lower price than before the split, the result can be a temporary increase in demand and the share price.<ref> [https://www.sciencedirect.com/science/article/pii/S0167268123002858 Duffy, J, Rabanal, JP, Rud, O, "Market Reactions to Stock Splits: Experimental Evidence" Journal of Economic Behavior and Organization, 214 (2023), pp. 325-345.]</ref> Others contend that the management of a company, by initiating a stock split, is implicitly [[Signalling (economics)|signaling]] its confidence in the future prospects of the company.<ref>{{Cite web |title=COMMONLY ASKED QUESTIONS AND ANSWERS |url=https://www.sec.gov/Archives/edgar/data/1042046/000104204606000050/stocksplitfaqsa.htm |access-date=2023-08-01 |website=www.sec.gov}}</ref>

In a market where there is a high minimum number of shares, or a penalty for trading in so-called [[odd lot]]s (a non multiple of some arbitrary number of shares), a reduced share price may attract more attention from small investors. Small investors such as these, however, will have negligible impact on the overall price.{{cn|date=September 2020}}