do dividend shocks affect excess returns? an experimental study
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2017
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Abstract
The dividend announcement of a company is an informational event that can
cause underreaction, momentum, overreaction, post-dividend announcement
drift, and mean reversion. It is the uncertainty surrounding dividend
announcements that leads to such behavioural phenomena. Most authors consider
that underreaction occurs after dividend shocks because new information about
the dividend is being slowly and gradually built into the stock price. The
effect of dividend shocks is often reflected in excess returns, which can
last up to one year after the shock. The experiment described in this paper
tests whether statistically significant excess returns are realized after a
shock dividend announcement. Participants trade with the stocks of two
companies, which only differ by dividend-generating stochastic process. The
dividend process of Company 2 is a Merton-style jump-diffusion process
(consisting of two parts: Brownian motion and Poisson jump), while the
dividend process of Company 1 contains only the Brownian motion component.
Statistically significant excess returns are expected when trading with
Company 2 stocks. An autoregressive model is applied in order to test this
hypothesis. The conclusion is that a dividend shock is followed by
statistically significant excess returns in 20 of the 22 experiments, which
implies that markets are inefficient after sudden and large changes in
dividends. Underreaction and discount rate effects are identified.
| Reference Key |
dragana2017ekonomskido
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|---|---|
| Authors | ;Draganac Dragana |
| Journal | Aesthetic plastic surgery |
| Year | 2017 |
| DOI |
10.2298/EKA1714045D
|
| URL | |
| Keywords |
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