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

Author

Listed:
  • 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.

Suggested Citation

  • Henryk Gurgul & Pawe³ Majdosz & Roland Mestel, 2006. "Implications of Dividend Announcements for the Stock Prices and Trading Volumes of DAX Companies (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 56(1-2), pages 58-68, January.
  • Handle: RePEc:fau:fauart:v:56:y:2006:i:1-2:p:58-68
    as

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    File URL: http://journal.fsv.cuni.cz/storage/1045_s_058_068.pdf
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    References listed on IDEAS

    as
    1. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-1051, September.
    2. repec:bla:joares:v:29:y:1991:i:2:p:302-321 is not listed on IDEAS
    3. Franklin Allen & Antonio E. Bernardo & Ivo Welch, 2000. "A Theory of Dividends Based on Tax Clienteles," Journal of Finance, American Finance Association, vol. 55(6), pages 2499-2536, December.
    4. Doron Nissim, 2001. "Dividend Changes and Future Profitability," Journal of Finance, American Finance Association, vol. 56(6), pages 2111-2133, December.
    5. Karpoff, Jonathan M, 1986. " A Theory of Trading Volume," Journal of Finance, American Finance Association, vol. 41(5), pages 1069-1087, December.
    6. 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 831-872, August.
    7. Joan Farre-Mensa & Roni Michaely & Martin Schmalz, 2014. "Payout Policy," Annual Review of Financial Economics, Annual Reviews, vol. 6(1), pages 75-134, December.
      • 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.
    8. 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 411-411.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

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

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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