Market rationality and dividend announcements |
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Authors: | Kenneth M. Eades Patrick J. Hess E.Han Kim |
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Affiliation: | University of Michigan, Ann Arbor, MI 48109, USA;University of Minnesota, Minneapolis, MN 55455, USA;University of Michigan, Ann Arbor, MI 48109, USA |
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Abstract: | We investigate stock market rationality by examining the timeliness and unbiasedness of the market's response to dividend announcements. Our initial findings for market timeliness show a sluggish market reaction to dividend announcements; however, when the ex-dividend effect is controlled for, we find no evidence of a sluggish market reaction. We examine the unbiasedness of the market's response by testing whether the net announcement effect across a sample that is devoid of ex-post selection bias sums to zero. We observe a significant positive net announcement effect and examine several plausible conjectures for this puzzling phenomenon, but none provides a satisfactory explanation. |
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