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Implications of Dividend Announcements for the Stock Prices and Trading Volumes of DAX Companies (in English)

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Author Info

  • Henryk Gurgul

    ()
    (Department of Applied Mathematics, University of Science and Technology, Krakow, Poland)

  • Pawe³ Majdosz

    ()
    (Department of Quantitative Methods in Economics, School of Economics and Computer Science, Krakow, Poland)

  • Roland Mestel

    ()
    (Institute of Banking and Finance, University of Graz, Austria)

Abstract

This paper deals with market reactions to dividend announcements on the German stock market. Our study is based on a model of expected dividends with regard to the reluctance-to-change-dividends hypothesis. State-of-the-art models are used to detect price and volume reactions to dividend news. Empirical results provide evidence that announced dividend changes convey new information to the market. On average, stock prices move in the same direction as dividends. One can observe an increase in stock-return volatility in anticipation of expected news. For the entire sample, we find that trading volumes exhibit significant increases around dividend announcement dates. This supports the hypothesis that dividend change in either direction causes an increase in investors’ propensity to revise their portfolios.

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Bibliographic Info

Article provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.

Volume (Year): 56 (2006)
Issue (Month): 1-2 (January)
Pages: 58-68

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Handle: RePEc:fau:fauart:v:56:y:2006:i:1-2:p:58-68

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Related research

Keywords: abnormal stock returns; dividend announcements; GARCH modeling; trading volume;

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  1. Karpoff, Jonathan M, 1986. " A Theory of Trading Volume," Journal of Finance, American Finance Association, vol. 41(5), pages 1069-87, December.
  2. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411.
  3. Kandel, Eugene & Pearson, Neil D, 1995. "Differential Interpretation of Public Signals and Trade in Speculative Markets," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 831-72, August.
  4. Franklin Allen & Antonio Bernardo & Ivo Welch, . "A Theory of Dividends Based on Tax Clienteles," Rodney L. White Center for Financial Research Working Papers 15-98, Wharton School Rodney L. White Center for Financial Research.
  5. Allen, Franklin & Michaely, Roni, 2003. "Payout policy," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 7, pages 337-429 Elsevier.
  6. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
  7. Doron Nissim, 2001. "Dividend Changes and Future Profitability," Journal of Finance, American Finance Association, vol. 56(6), pages 2111-2133, December.
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