The performance of stocks following demergers tends to vary considerably for both the parent and so-called child entity spun off.
An investigation into demergers by Macquarie Private Wealth follows engineering company UGL last week indicating it may split its property and engineering divisions. That caused UGL's share price to jump 12 per cent in a day.
Macquarie analysts used the UGL announcement - and a future split of News Corporation - to measure the performance of stocks following demergers.
They revisited the bank's historical data, which includes 29 spinoffs since 1995, and found the performance of parent and child companies tends to vary "quite consistently" after a demerger.
The report measured the cumulative excess returns six months before and 12 months after the demerger date.
It found the child stock typically underperformed the market for the first few weeks following a spin-off, and that this continued for at least six months.
"The child entity can underperform by up to 9 per cent in the six months following a demerger," the Macquarie Private Wealth report said. "It is not until 12 months after the split that the child entity typically outperforms."
The performance of parent entities is typically flat leading into a demerger then better after the split.