Lewis Krauskopf, Saqib Iqbal Ahmad and Saqib Saqib

NEW YORK, (Reuters) – Amazon’s stock split could provide some relief for shareholders who saw their shares fall this year.

Amazon shares rose 3.1% and reached $126.17 by afternoon trading following the announcement earlier this year of the 20-for-1 Split. This split took effect Monday. The loss has been roughly the same as the one in the past year. This is due to rising interest rates which have lowered risk appetite and pressed shares of high growth companies.

While a split has no bearing on a company’s fundamentals, it could help buoy its share price by making it easier for a wider range of investors to own the stock, market participants said.

Steve Sosnick (NASDAQ: Chief Strategist at Interactive Brokers) stated that stock splits can be associated with profitable stocks. Stock splits can be good for psychology. While we can argue whether or not they are, the market will perceive them as a positive and they will act accordingly.

MKM Partners analyst believe that Amazon’s rally since May has been helped by anticipating the split.

“While we view this event as a largely non-fundamental one, we believe a stock split and potential retail trading activity could provide an incremental catalyst to turn sentiment on AMZN shares,” MKM’s Rohit Kulkarni said in a note on Monday.

Cboe reports that stock splits can increase participation by retail investors. These investors have a tendency to trade at lower sizes than institutional investors due to limited capital.

According to the study, stocks with a larger market capitalization were most affected. The report examined 61 stocks in all markets capitalization types that had split between 2020 and now.

Peng Cheng, head of big data and AI strategies at JPMorgan (NYSE:), said retail investors’ ownership in Amazon’s shares had been comparatively low, compared to robust retail activity in the company’s options – a sign that a four-digit share price may have been turning off individual traders.

“Psychologically, it doesn’t feel good to spend $1,000 and own a third of a share,” he said.

BofA Global Research found that companies who enact splits are “historically bullish”, with shares representing an average return for 25% one-year later, compared to 9% overall.

Stock splits historically bullish https://graphics.reuters.com/AMAZON-STOCKS/SPLIT/xmpjoexdjvr/chart.png

Analysts believe that stock splits could increase investor options especially in stocks of high value.

A trader who wanted to place a bet that Amazon shares would rise by 12 percent by July 1, for instance, would have to spend approximately $2,900. According to Reuters, a $135 bet for the same percentage increase in shares by July 1, would have cost around $2,900.

But options have not been as strong in the market last year during the peak of meme-stockmania.

Sosnick stated that if this had happened one year ago when traders became enamored of call speculation in an unimaginable way, it would have been even more explosive.

Amazon shares versus other megacap stocks https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwezwjvo/Pasted%20image%201654528950737.png

A stock split by itself is not likely to reverse the many factors that drove shares lower in this year’s market, such as tighter monetary policies and high inflation for decades.

According to Randy Frederick, Vice President of Trading and Derivatives at the Schwab Center for Financial Research, this has also impacted the appeal of stock splittings for investors.

Frederick explained that it is not as important as in the past.

Amazon is the most recent megacap firm to divide its stock. Nvidia, Tesla and Apple have also split shares since 2020.

Alphabet Inc (NASDAQ) Inc announced a 20-1 stock split for February. The split is anticipated to go into effect next month.

Megacap companies’ influence on the U.S. stock market https://graphics.reuters.com/USA-STOCKS/ALPHABET/znpnejkyrvl/chart.png