FAMA, FISHER, JENSEN AND ROL following the split month, while month-1 is the month preceding, etc. Now define the average residual for month m (where m is always measured rela- tive to the split month)as where aim is the sample regression residual for security j in month m and mma is the number of splits for which data are available in month m 13 Our principal tests will involve examining the behavior of um for m in the in- terval-29 s m s 30, i.e., for the sixty months surrounding the split month. We shall also be interested in examining the cumulative effects of abnorm return behavior in months surrounding the split month. Thus we define the cumulative average residual Um as Um= The average residual um can be interpreted as the average deviation(in month m relative to the split month)of the returns of split stocks from their normal relationships with the market. Similarly, the cumulative average residual Um can be interpreted as the cumulative deviation (from month -29 to month m); it shows the cumulative effects of the wanderings of the re- turns of split stocks from their normal relationships to market movements Since the hypothesis about the effects of splits on returns expounded in Section 2 centers on the dividend behavior of split shares, in some of the tests to follow we examine separately splits that are associated with increased dividends and splits that are associated with decreased dividends. In addi tion, in order to abstract from general changes in dividends across the market, "increased"and"decreased"dividends will be measured relative to the average dividends paid by all securities on the New York Stock Exchange during the relevant time periods. The dividends are classified as follows Define the dividend change ratio as total dividends (per equivalent unsplit share)paid in the twelve months after the split, divided by total dividends paid during the twelve months before the split. 4 Dividend"increasesare then defined as cases where the dividend change ratio of the split stock is greater than the ratio for the Exchange as a whole, while dividend "decreases include cases of relative dividend decline 5 We then define u+, u- and U+ 13 Since we do not consider splits of companies that were not on the New York Stock Exchange for at least a year before and a year after a split num will be 940 for -11 s m s 12. For other months, however, n 940 4 A dividend is considered"paid"on the first day the security trades ex-dividend on the exchange. 15 When dividend“ Increase”and“ decrease” are defined relative to the market, it turns out that dividends were never "unchanged. That is, the di ratios of split securities are never identical to the corresponding ratios for the Ex (Continued on neat page