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An empirical analysis of stock returns around dividend changes

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  • Rakesh Bali

Abstract

This paper documents significant drift in stock returns following announcements of changes in cash dividends. The magnitude is (i) smaller for increases than for decreases, (ii) inversely related to firm size and positively to dividend yield change, and (iii) concentrated in the first quarter. Beta changes do not explain the drift and it is robust in various subperiods. Next it is shown that dividend increases are positively autocorrelated especially every fourth quarter. The prices keep reacting to future announcements as if the market ignores these autocorrelations. Dividend decreases exhibit weak autocorrelation and the returns are negative for the following three announcements.

Suggested Citation

  • Rakesh Bali, 2003. "An empirical analysis of stock returns around dividend changes," Applied Economics, Taylor & Francis Journals, vol. 35(1), pages 51-61.
  • Handle: RePEc:taf:applec:v:35:y:2003:i:1:p:51-61
    DOI: 10.1080/0003684020158930
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    Cited by:

    1. Darakhshan Younis & Attiya Yasmin Javid, 2014. "Market Imperfections and Dividend Policy Decisions of Manufacturing Sector of Pakistan," PIDE-Working Papers 2014:99, Pakistan Institute of Development Economics.
    2. Al-Malkawi, Husam-Aldin Nizar & Bhatti, M. Ishaq & Magableh, Sohail I., 2014. "On the dividend smoothing, signaling and the global financial crisis," Economic Modelling, Elsevier, vol. 42(C), pages 159-165.
    3. repec:spr:jecfin:v:41:y:2017:i:3:d:10.1007_s12197-016-9362-x is not listed on IDEAS
    4. Matthias Nnadi & Nyema Wogboroma & Bariyima Kabel, 2013. "Determinants of Dividend Policy: Evidence from Listed Firms in the African Stock Exchanges," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(6), pages 725-741, December.
    5. Shaif Jarallah & Wali Ullah, 2014. "Evolving corporate governance and the dividends behaviour regime in Japan," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 61(3), pages 279-303, September.

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