This paper examines the adjustment of stock prices to new information, particularly focusing on the impact of stock splits. The authors argue that while successive price changes in individual stocks are often independent, this independence is consistent with an efficient market that rapidly adjusts to new information. However, the paper notes that empirical studies have primarily inferred market efficiency from the observed independence of price changes rather than testing the speed of adjustment to specific types of new information. The primary concern of this study is to investigate how common stock prices adjust to the information implicit in a stock split. The authors propose a new "event study" methodology to measure the effects of actions and events on security prices. They hypothesize that stock splits are typically preceded by a period of unusually high returns, which they attribute to anticipated increases in earnings and dividends. The study finds that the highest average monthly returns on split shares occur in the few months immediately preceding the split, but these returns are not significantly influenced by the split itself. The authors also examine the relationship between stock splits and dividend changes, suggesting that the market anticipates substantial increases in dividends following splits. They find that when the information effects of dividend changes are considered, the apparent price effects of splits become negligible. The study concludes that stock splits do not have a net effect on common stock returns, and that the market rapidly adjusts to new information, supporting the efficiency of the stock market.This paper examines the adjustment of stock prices to new information, particularly focusing on the impact of stock splits. The authors argue that while successive price changes in individual stocks are often independent, this independence is consistent with an efficient market that rapidly adjusts to new information. However, the paper notes that empirical studies have primarily inferred market efficiency from the observed independence of price changes rather than testing the speed of adjustment to specific types of new information. The primary concern of this study is to investigate how common stock prices adjust to the information implicit in a stock split. The authors propose a new "event study" methodology to measure the effects of actions and events on security prices. They hypothesize that stock splits are typically preceded by a period of unusually high returns, which they attribute to anticipated increases in earnings and dividends. The study finds that the highest average monthly returns on split shares occur in the few months immediately preceding the split, but these returns are not significantly influenced by the split itself. The authors also examine the relationship between stock splits and dividend changes, suggesting that the market anticipates substantial increases in dividends following splits. They find that when the information effects of dividend changes are considered, the apparent price effects of splits become negligible. The study concludes that stock splits do not have a net effect on common stock returns, and that the market rapidly adjusts to new information, supporting the efficiency of the stock market.