Many investors are confused by stock splits effect to the value of their stocks and value of the company that they are investing in. In reality there is nothing mystical about stocks. However, I have noticed many times by my self that after share split total market capitalization had increased in reality even if theoretically it should have not.
Theoretically everything is in this crystal clear and simple. After stock split number of sharer outstanding increases but the price of one stock decreases proportionally, but the total value of shares which is represented by market capitalization should not change. That's the theory.
Of course practice bring all kind of results and those might be very different. The main thing that if even sometimes it does not work, that means about market inefficiency. Market efficiency is a very lot discussed theme how does it work, do you believe in it or not and all the talks like this. I say it now, this is the proof of markets inefficiency.
Especially in less developed market proofs are more significant because in emerging market after strong stock split value in few days or weeks gets most of the time higher that before which means stock market cap increases. Market capitalization represents the value of all shares (stock).
I'm not sure about how many times it happens from all the events, but the thing that even sometimes it does says some things to us about market inefficiency. Take that in mind when you'll be ready.
