Dividend Stocks List
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Dividend announcement effect on Indian bourses
Dividend announcement effect on Indian bourses
Perhaps no other area of finance has been subject to so much empirical investigation during the last four decades as the behavior of stock prices. The present study attempts to contribute positively to the understanding of the behavior of Indian share prices in relation to the dividend announcements. The study analyze the dividend announcement, it includes 100 blue chip companies. The dividend is the cost of equity capital to equity shareholders. The announcement has an impact on the market price of the shares; the market will react positively, if the dividend is upto the expectation level of the equity investors. At the same time if the dividend announcement is not the expectation level of the shareholders, the market reaction will in bear trend for that particular scrip.
The present study covers the aspects are: the theories concerning share price behavior, namely the fundamental analysis and technical analysis; the concepts of market efficiency and its historical development; review of studies on market efficiency with a separate discussion of evidence relating to the Indian capital market and a brief account of various dimensions of stock market in India which are expected to have a bearing on market efficiency.
Objectives of the study
The objectives of the study has been
To examine the behavior of stock prices around the announcement of dividends of the company
To investigate if strategies based on information contained in dividend announcement could be used to outperform the market.
To find the correct path of future trends based on the announcement effect.
In this context, the behavior of stock prices has been examined in the prior and post announcement periods in relations to the unexpected earnings defined in two ways i.e., sign of unexpected dividends and the standardized unexpected dividends and the price-earnings ratios.
Hypothesis of the study
The hypotheses which have been tested are;
That the reaction of stock prices to the sign of the unexpected dividend announce is completer on the day of the announcement.
That there is no difference in stock price response to portfolios based on price-earnings ratios.
That there is no difference in the stock price adjustment to the different; and categories of portfolios based on unexpected dividends.
A gradual adjustment of stock prices to the dividend announcements is considered imperfect in the share market place.
The sample and data
The present study covers a period of more than three years from April 2005 to March 2008 and the results are based on a sample of 100 stocks, listed in the National Stock Exchange. Two basic time series data have been employed in this study. These are the daily closing price of all the stocks and dividend per share for each year and for the each share are used. The data is collected from the daily newspapers like business line and the economic times.
Methodology
The event study methodology and time series analysis have been adopted to analyze the mass data. The supporting statistical tools can be used for simplification and application of the data analysis. The abnormal returns are calculated for the entire period.
Empirical results
The abnormal returns implicit in the trading strategy occur during the prior and post announcement periods. Empirical results for the study period as a whole also reveal that roughly three-fourth of the total price response occurred in the post announcement period. The price response is not only delayed, it persists in the control period +10 to 15 days. Roughly one-fourth of the total price adjustment occurs in the control period +10 days to 15 days. That is, during the study period, investors could have earned abnormal returns by following the strategy if their investment action was delayed to the extent of 10 days which amounts at least to one calendar month.
An analysis of the difference in cumulative abnormal returns between the highest and lowest portfolios are with the identical risk reveal the former consistently outperformed the later except for the year 2007. The differences in cumulative abnormal returns between the lowest and the highest portfolios with risks are equal to one are positive for the event window for the all years.
Conclusion
An important finding of the study is that unusually high abnormal returns in the pre-announcement period are succeeded by either negative abnormal returns or considerably reduced abnormal returns in the post-announcement period. The beta (risk) values for individual stocks and portfolios are found to vary considerably in the adjacent periods. The historical risks are poor indicators of future sensitivity of stocks to the movement of the market movements. The abnormal returns were found to persist upto 15 days subsequent to the announcements.
THINK! Merrill Lynch and Bank of America. Thain Knew.
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