Ex-Split Trading Volume and Insider Trading Data

First up this week is James Donnelly, who writes: "I've been trading for years and never gave this a thought, but now it suddenly occurs to me: How is the reported trading volume of a stock adjusted after a split? I've looked at many charts and the volume shows no significant change after a split. I would think that if you assume dollar volume is more or less the same and no adjustment is made, the share volume would have to double. Two examples with many splits and level or declining volume are Cisco (CSCO) and Dell (DELL)."

Unlike historical prices, the trading volume reported for stocks is not adjusted after they split, according to National Association of Securities Dealers spokesman Mike Shokouhi. So your assumption is correct, James -- if a stock's dollar volume stays the same after a 2-1 split, twice as many shares would have to be changing hands.

By the way, it's not strange that you actually see a post-split dip in the volume in high-profile stocks like Dell and Cisco. Both these stocks experienced extremely heavy trading in the period leading up to their respective splits, as droves of investors succumbed to the truism that split stocks rise when they become more affordable. Indeed, the fact that the trading volume on these stocks shows no marked ex-split increase gives the lie to this belief, which doesn't make any sense in fundamental terms anyway.

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Memo to Mike Hatton, who wonders where on TheStreet.com he can find numbers on insider trading activity, and whether such data matter in the first place: You can find that data in TSC's Tools/Quotes section. Type in a ticker symbol and click "Research." Then click on "insider/institutional/shorts." You'll see the total number of insider trades over the last six months, and the ratio of buying to selling action.

The Securities and Exchange Commission requires all insiders (technically defined as individuals holding more than 10% of a company's stock) to file a Form 3, which lists the amount of stock, options, warrants, convertible bonds and rights they hold. Whenever this information changes, insiders have to update it in a Form 4. You can find these filings at Edgar-Online and the SEC's Web site .

How useful is insider trading data? That probably depends on what you want it to do for you. I, for one, am not willing to completely discount the sentiment of the people closest to a company's operations. Check out TSC contributor John Rubino's excellent column from yesterday on the subject.

Memo to Kent Alexander, who wants to know if the guy who told him that "shorting is a sales transaction, and therefore cannot affect the downward momentum of a stock" is correct: Lose the friend. To short a stock, you have to sell it. Selling a stock always puts downward pressure on a stock's price, by taking shares off the bid. (See a previous column for an explanation of this process.) It's true, though, that you need a whole lot of short selling to create any significant downward momentum on a stock. Shorts are lonely creatures, far outnumbered by longs in almost every market.

Memo to David Mitrovich, who wonders if there's a certain time frame in which an investor has to cover a short sale: No. There's a very uncertain time frame in which a short sale has to be covered. Short positions can be held indefinitely until a broker calls in the borrowed shares.

Memo: Have a dumb question relating to finance? Have a problem with something I've written? Send it to [e-mail], and I'll do my best to answer. Include your full name, and please, no questions seeking personal financial advice or regarding personal brokerage disputes. And this reminder: Because of the volume of mail, personal replies can't be guaranteed.

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