Using stock price behavior about a dividend change as a predictor of behavior around future changes
Abstract
Scope and Method of Study: This study performs a test of the Information Content of Dividends hypothesis and the relative use of the hypothesized information. The data was obtained from Standard and Poor's 40-quarter COMPUSTAT tape. Using Jensen's Excess Returns form of the capital asset pricing model, stock price performance about a dividend change was observed. The observed performance was then used as a predictor of performance around subsequent changes. The relative size of the dividend change was also tested as a predictor. Findings and Conclusions: A price adjustment was observed; however, its timing was such that it was of no use to the investor. Counterintuitively, it was found that the stock price adjusted in the opposite direction in the months after the change, in general negating the adjustment prior to the change. Also, it was found that neither the size of the dividend change nor the truth of a prior dividend was an indication of the truth of dividend change signal.
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- OSU Master's Report [734]