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Trading Behavior and the Unbiasedness of the Market Reaction to Dividend Announcements

Trading Behavior and the Unbiasedness of the Market Reaction to Dividend Announcements ABSTRACT This article examines the price formation process during dividend announcement day, using daily closing prices and transactions data. We find that the unconditional positive excess returns, first documented by Kalay and Loewenstein (1985), are higher for small‐firm and low‐priced stocks. Price volatility and trading volume also increase during this period. Examination of trade prices relative to the bid‐ask spread and volume of trades at bid and asked prices shows that the excess returns cannot be attributed to measurement errors or to spillover effects of tax‐related ex‐day trading. Rather, the price behavior is related to the absorption of dividend information. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Trading Behavior and the Unbiasedness of the Market Reaction to Dividend Announcements

The Journal of Finance , Volume 50 (1) – Mar 1, 1995

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References (36)

Publisher
Wiley
Copyright
1995 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1995.tb05173.x
Publisher site
See Article on Publisher Site

Abstract

ABSTRACT This article examines the price formation process during dividend announcement day, using daily closing prices and transactions data. We find that the unconditional positive excess returns, first documented by Kalay and Loewenstein (1985), are higher for small‐firm and low‐priced stocks. Price volatility and trading volume also increase during this period. Examination of trade prices relative to the bid‐ask spread and volume of trades at bid and asked prices shows that the excess returns cannot be attributed to measurement errors or to spillover effects of tax‐related ex‐day trading. Rather, the price behavior is related to the absorption of dividend information.

Journal

The Journal of FinanceWiley

Published: Mar 1, 1995

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