Are Stock Splits Bullish?
Historically, forward splits have been associated with above-average returns in the year after the announcement — but the effect reflects which companies split (winners) more than the split itself. Reverse splits, by contrast, tend to precede continued underperformance.
The bullish case
Multiple studies have shown that splitting stocks outperform the broader market in the months and years following the announcement. Bank of America's analysis of 40+ years of U.S. splits found the median stock beating the S&P 500 by roughly 25% in the following 12 months.
Why this might happen
- Selection bias: only strong performers reach split-worthy prices.
- Signaling: management doesn't split expecting a crash.
- Momentum: stocks that have risen tend to keep rising in the short term.
- Retail attention: splits generate news and inflows.
- Improved liquidity: can slightly lower cost of capital.
The skeptical case
A split doesn't create fundamental value. Once you account for the fact that splits happen after big run-ups, much of the "split effect" can be explained by simple momentum. In modern markets — with fractional shares, algorithmic execution, and lower psychological friction — the accessibility argument for splits is weaker than it was 30 years ago.
Recent notable forward splits
Reverse splits are a different story
Reverse splits are consistently associated with underperformance. They often signal companies struggling to maintain exchange listing minimums. The base rate of continued decline after a reverse split is high — though not universal.
The practical takeaway
A stock split is a signal, not a strategy. It can put a good business on your radar — but it shouldn't be the reason you buy.