Sensitivity Of Investor Reaction To Market Direction And Volatility: Dividend Change Announcements
AbstractWe examine whether investor reactions are sensitive to the recent direction or volatility of underlying market movements. We find that dividend change announcements elicit a greater change in stock price when the nature of the news (good or bad) goes against the grain of the recent market direction during volatile times. For example, announcements to lower dividends elicit a significantly greater decrease in stock price when market returns have been up and more volatile. Similarly, announcements to raise dividends tends to elicit a greater increase in stock price when market returns have been normal or down and more volatile, although this latter tendency lacks statistical significance. We suggest an explanation for these results that combines the implications of a dynamic rational expectations equilibrium model with behavioral considerations that link the responsiveness of investors to market direction and volatility. 2005 The Southern Finance Association and the Southwestern Finance Association.
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Bibliographic InfoArticle provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.
Volume (Year): 28 (2005)
Issue (Month): 1 ()
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- Díaz, Antonio & Jareño, Francisco, 2009. "Explanatory factors of the inflation news impact on stock returns by sector: The Spanish case," Research in International Business and Finance, Elsevier, vol. 23(3), pages 349-368, September.
- Jeffrey Jones & Jenny Gu & Pu Liu, 2014. "Do dividend initiations signal a reduction in risk? Evidence from the option market," Review of Quantitative Finance and Accounting, Springer, vol. 42(1), pages 143-158, January.
- Antonio Díaz & Francisco Jareño, 2013. "Inflation news and stock returns: market direction and flow-through ability," Empirical Economics, Springer, vol. 44(2), pages 775-798, April.
- Jais, Mohamad & Abdul Karim, Bakri & Funaoka, Kenta & Abidin, Azlan Zainol, 2009. "Dividend Announcements and Stock Market Reaction," MPRA Paper 19779, University Library of Munich, Germany.
- P. Srinivasan, 2012. "Determinants of Equity Share Prices in India: A Panel Data Approach," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 205-228, December.
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