This paper by Eugene F. Fama, Lawrence Fisher, Michael C. Jensen, and Richard Roll examines how stock prices adjust to new information, particularly focusing on the effects of stock splits on security prices. The authors argue that the independence of successive price changes in individual stocks is consistent with an efficient market, where prices adjust rapidly to new information. However, they emphasize that the speed of adjustment to specific types of new information has not been thoroughly tested. The study investigates whether stock splits influence stock prices and whether the effects of splits can be attributed to changes in dividends. The authors propose a new "event study" methodology to measure the impact of stock splits on security prices. They find that stock splits are often preceded by a period of unusually high returns, which they attribute to increased expected earnings and dividends. However, the high returns immediately before a split may not be due to the split itself but rather to the anticipation of future dividend increases. The authors analyze the relationship between stock splits and dividend changes, finding that splits are often associated with dividend increases. They show that the market anticipates these increases and adjusts prices accordingly. However, when the dividend increase actually occurs, the price adjustments tend to revert to normal levels, suggesting that the split itself does not have a net effect on stock returns once the information effects of dividend changes are considered. The study also examines the speed at which market prices adjust to new information. The authors find that while there are some differences in returns depending on whether dividend increases occur, the overall average residuals are randomly distributed around zero in the months following a split. This suggests that the market makes unbiased forecasts of dividend changes and that these forecasts are reflected in stock prices by the end of the split month. The paper concludes that stock splits are often associated with dividend increases, and the market adjusts prices to reflect these changes. However, once the information effects of dividend changes are considered, splits themselves do not have a net effect on stock returns. The study supports the conclusion that stock markets are efficient, as prices adjust rapidly to new information.This paper by Eugene F. Fama, Lawrence Fisher, Michael C. Jensen, and Richard Roll examines how stock prices adjust to new information, particularly focusing on the effects of stock splits on security prices. The authors argue that the independence of successive price changes in individual stocks is consistent with an efficient market, where prices adjust rapidly to new information. However, they emphasize that the speed of adjustment to specific types of new information has not been thoroughly tested. The study investigates whether stock splits influence stock prices and whether the effects of splits can be attributed to changes in dividends. The authors propose a new "event study" methodology to measure the impact of stock splits on security prices. They find that stock splits are often preceded by a period of unusually high returns, which they attribute to increased expected earnings and dividends. However, the high returns immediately before a split may not be due to the split itself but rather to the anticipation of future dividend increases. The authors analyze the relationship between stock splits and dividend changes, finding that splits are often associated with dividend increases. They show that the market anticipates these increases and adjusts prices accordingly. However, when the dividend increase actually occurs, the price adjustments tend to revert to normal levels, suggesting that the split itself does not have a net effect on stock returns once the information effects of dividend changes are considered. The study also examines the speed at which market prices adjust to new information. The authors find that while there are some differences in returns depending on whether dividend increases occur, the overall average residuals are randomly distributed around zero in the months following a split. This suggests that the market makes unbiased forecasts of dividend changes and that these forecasts are reflected in stock prices by the end of the split month. The paper concludes that stock splits are often associated with dividend increases, and the market adjusts prices to reflect these changes. However, once the information effects of dividend changes are considered, splits themselves do not have a net effect on stock returns. The study supports the conclusion that stock markets are efficient, as prices adjust rapidly to new information.