Palm stock investors be forewarned: Palm did not drop 50% today - there was simply a 2:1 stock split before the market is going to open today. What's the rationale behind a stock split? From
Wikipedia:
It is often claimed that stock splits in-of-themselves lead to higher stock prices, however, research does not bear this out. What is true is that stock splits are usually initiated after a large run up in share price. Momentum investing would suggest that such a trend would continue regardless of the stock split.
Other effects could be psychological. If many investors think that a stock split will result in an increased share price and therefore purchase the stock, the share price will tend to increase. Others contend that the management of a company, by initiating a stock split, is implicitly conveying its confidence in the future prospects of the company.