Determining the Effectiveness of Dividend Change as an Indicator of Price Movement
Session Number
H03
Advisor(s)
Maxwell Rhee, TransMarket Group
Location
A-135
Start Date
28-4-2016 2:00 PM
End Date
28-4-2016 2:25 PM
Abstract
Identifying factors that affect the price movements of a stock comprises the core of strategy development. Earnings surprise, price to earnings to growth, and return on equity are some of the more common factors. Dividend change, however, has had mixed results. Some researchers have concluded that dividends have no influence on prices while others have identified a direct causation. This paper examines the effects that dividend changes have on a company stock price, measured in terms of abnormal returns up to sixty days after the dividend announcement. To do so, we conducted a multiple-factor linear regression of dividend events against its respective company size, value, and expected return. This regression would eliminate variation in price movements related to the company itself, thus removing noise that may compound the effects of the dividend event. Current theories such as the Dividend Signaling and Free-Cash-Flow hypotheses predict that an increase (decrease) in dividend payout will result in a positive (negative) price movement. However, our results had shown no significant stock price movements resulting from dividend changes.
Determining the Effectiveness of Dividend Change as an Indicator of Price Movement
A-135
Identifying factors that affect the price movements of a stock comprises the core of strategy development. Earnings surprise, price to earnings to growth, and return on equity are some of the more common factors. Dividend change, however, has had mixed results. Some researchers have concluded that dividends have no influence on prices while others have identified a direct causation. This paper examines the effects that dividend changes have on a company stock price, measured in terms of abnormal returns up to sixty days after the dividend announcement. To do so, we conducted a multiple-factor linear regression of dividend events against its respective company size, value, and expected return. This regression would eliminate variation in price movements related to the company itself, thus removing noise that may compound the effects of the dividend event. Current theories such as the Dividend Signaling and Free-Cash-Flow hypotheses predict that an increase (decrease) in dividend payout will result in a positive (negative) price movement. However, our results had shown no significant stock price movements resulting from dividend changes.