Market Reactions to dividends, Effects of market when dividends are announced, Effects of Announcement dates and effective dates on stock market.

1. Market Reactions to Dividends
Prepared By: Shyam Mistry
Roll No: 20
Guided BY: Prof. Neeraj K. Yajnik Sir

2. Introduction
It is widely accepted in financial theory that a company’s dividend
policy has a non-trivial impact on the wealth of its shareholders.
Empirical evidence indicates that corporate announcements of
dividend pay-outs are typically associated with significant price effects.
If investors prefer capital gains to dividend pay-outs (e.g. due to tax
reasons), higher dividends will cause a decrease in demand for equity,
leading stock prices to fall. Alternatively, investors will seek to buy
stocks that pay low dividends, inducing stock prices to rise.

3. Meanings
Stock means:
Market means:
What is Stock Market?
What is Dividend?
What is Ex-Dividend?
Declaration Date:
Effective Date:
What is Dividend Policy?

4. Reviewing empirical literature
Dividend as the main method of distributing cash to shareholders has
received considerable prior attention in the finance literature. Lintner
(1956) suggests that firms prefer to smooth their dividend and reluctant to
change their pay-out policy. The management is reluctant to cut dividend
because it might send negative signal to investor and reluctant to increase
pay-out for fear that it might not sustainable in the future.
Docking and Koch (2005) find that stock market reaction to dividend
announcement is sensitive to the direction or volatility of the stock
market.
Asquith and Mullins (1983) (dividend initiations), Healy and Palepu
(1988), and Michaely, Thaler, and Womack (1995) (dividend
omissions)—showed that the market reacts dramatically to such
announcements.

5. Research methodology
Rational of the Study
Stock Markets are very sensitive. When we talk about Indian Stock
Market, it is clear that Indian Stock Market is more volatile than other
stock markets. Indian Markets like NSE and BSE reacts to much
information which in market day to day.
Information like Dividend Announcement dates, Stock
splits, Government Policies, Companies’ Quarterly Results etc.
Dividends are most attractive part for investors.
It is widely known that when divided announces stock prices are tend
to down. So here in this research I want to see that what the
reactions of markets are when dividend announces, what are the
reactions when dividends come in effect.

6. Objectives
To investigate market reactions to announced changes in dividend
policies.
To investigate whether the market treats announcements of
dividend initiations (good news) and omissions (bad news)
symmetrically or whether price reactions to omissions are greater
than for initiations.

7. Research design
Universe: Stock listed in Bombay Stock Exchange (BSE).
Sampling Unit: BSE A group Companies
Sampling period: Year 2009 to 2011 Daily price
Sample size: 20 Companies (Three consecutive years)
Sampling Method: Random Sampling Method
Sources of data:
Primary Data:
Research does not contain any primary survey.
Secondary Data: Data available on
http://www.moneycontrol.com/stocksmarketsindia/,
http://beta.bseindia.com/.

8. Research Analysis Tools
Research tool is Market Model Approach i.e. (MM).
ai = ẏ-(ß*ẍ)
ßi = (x-ẍ) × (y-ẏ) / (x-ẍ)2
Stock and Index return = (P1 – P0/P0)* 100
Abnormal Return = Stock Return – Market Model Return

9. Data Analysis

10. ABB Time Line Date α of Stock βof Stock Average Abnormal
Return
2011 Before 23-02-2011 -0.203596387 0.164831923 0.026817286
Announcement Date
Between -0.015355551 0.255271269 0.45510002
Announcement &
Effective Date
After Effective Date 02-05-2011 -0.192056239 0.265098482 0.349484456
2010 Before 26-02-2010 0.00122615 0.400432107 0.089162624
Announcement Date
Between 0.154111363 0.115380755 -0.311119162
Announcement &
Effective Date
After Effective Date 03-05-2010 -0.091028229 0.014812382 0.828923563
2009 Before 20-02-2009 0.0710812 0.4379933 -0.42989703
Announcement Date
Between 0.5255089 0.2651362 -0.327997367
Announcement &
Effective Date
After Effective Date 11-05-2009 0.0146856 0.5692809 1.481797228

11. 10
20
30
40
50
0
-20
-10
21/Jan/09
21/Feb/09
21/Mar/09
21/Apr/09
21/May/09
21/Jun/09
21/Jul/09
21/Aug/09
21/Sep/09
21/Oct/09
21/Nov/09
21/Dec/09
21/Jan/10
21/Feb/10
21/Mar/10
21/Apr/10
21/May/10
21/Jun/10
21/Jul/10
21/Aug/10
21/Sep/10
21/Oct/10
21/Nov/10
21/Dec/10
21/Jan/11
Cumulative Abnormal Return
21/Feb/11
21/Mar/11
21/Apr/11
21/May/11
Cumulative Abnormal Return

12. Time Line Date α of Stock βof Stock Average Abnormal
ACC Return
2011 Before 03-02-2011 -0.4304758 0.15034639 0.146401802
Announcement Date
Between 3.551E-05 0.67500986 0.08562241
Announcement &
Effective Date
After Effective Date 29-03-2011 -0.14624 0.4891623 0.459285118
2010 Before 04-02-2010 -0.2653909 0.31747427 0.101868912
Announcement Date
Between 0.1182541 0.31749113 0.165908832
Announcement &
Effective Date
After Effective Date 23-03-2010 0.0953772 0.08163334 -0.387826326
2009 Before 05-02-2009 -0.6088603 0.23397694 1.014574168
Announcement Date
Between 0.0817116 0.59365856 -0.045063691
Announcement &
Effective Date
After Effective Date 24-03-2009 0.6508619 0.27688611 0.235272945

13. -10
10
20
30
40
50
60
0
06/Jan/09
06/Feb/09
06/Mar/09
06/Apr/09
06/May/09
06/Jun/09
06/Jul/09
06/Aug/09
06/Sep/09
06/Oct/09
06/Nov/09
06/Dec/09
06/Jan/10
06/Feb/10
06/Mar/10
06/Apr/10
06/May/10
06/Jun/10
06/Jul/10
06/Aug/10
06/Sep/10
06/Oct/10
Cumulative Abnormal Return
06/Nov/10
06/Dec/10
06/Jan/11
06/Feb/11
06/Mar/11
06/Apr/11
Cumulative Abnormal Return

14. Time Line Date α of Stock βof Stock Average Abnormal
Bajaj Return
Hold. &
Inv.
2011 Before Announcement 18-05-2011 -0.2525255 0.2263128 0.311121855
Date
Between Announcement 0.138684 0.2487166 -0.261855918
& Effective Date
After Effective Date 29-06-2011 -0.1493804 0.12757 0.411648766
2010 Before Announcement 12-05-2010 -0.2311853 0.265105 0.497408115
Date
Between Announcement 0.0548015 0.083399 0.138536805
& Effective Date
After Effective Date 08-07-2010 0.1457487 -0.097288 0.004516511
2009 Before Announcement 21-05-2009 0.6039763 0.4992593 0.073034213
Date
Between Announcement 0.190554 0.1858962 -0.010430453
& Effective Date
After Effective Date 02-07-2009 0.0486405 0.4814357 0.39872414

15. -10
10
20
30
40
50
60
0
22/Apr/09
22/May/09
22/Jun/09
22/Jul/09
22/Aug/09
22/Sep/09
22/Oct/09
22/Nov/09
22/Dec/09
22/Jan/10
22/Feb/10
22/Mar/10
22/Apr/10
22/May/10
22/Jun/10
22/Jul/10
22/Aug/10
22/Sep/10
22/Oct/10
22/Nov/10
22/Dec/10
22/Jan/11
22/Feb/11
22/Mar/11
Cumulative Abnormal Return
22/Apr/11
22/May/11
22/Jun/11
22/Jul/11
Cumulative Abnormal Return

16. Britannia Time Line Date α of Stock βof Stock Average Abnormal
Return
Ind.
2011 Before 27-05-2011 -0.286833 0.07070304 0.415021515
Announcement Date
Between -0.010707 0.11647719 0.621346633
Announcement &
Effective Date
After Effective Date 19-07-2011 -0.577167 0.2606799 0.470131889
2010 Before 28-05-2010 -0.252877 0.80340887 0.511766967
Announcement Date
Between 0.15972 0.07300848 0.183074682
Announcement &
Effective Date
After Effective Date 23-07-2010 0.0721481 0.00843457 0.20045566
2009 Before 27-05-2009 0.3418886 1.36323116 -1.374331004
Announcement Date
Between 0.4268136 -0.4336988 -0.920680698
Announcement &
Effective Date
After Effective Date 09-06-2009 -0.403887 0.09728615 0.373576755

17. -10
10
20
30
40
50
60
70
90
80
0
28/Apr/09
28/May/09
28/Jun/09
28/Jul/09
28/Aug/09
28/Sep/09
28/Oct/09
28/Nov/09
28/Dec/09
28/Jan/10
28/Feb/10
28/Mar/10
28/Apr/10
28/May/10
28/Jun/10
28/Jul/10
28/Aug/10
28/Sep/10
28/Oct/10
28/Nov/10
28/Dec/10
28/Jan/11
28/Feb/11
28/Mar/11
Cumulative Abnormal Return
28/Apr/11
28/May/11
28/Jun/11
28/Jul/11
Cumulative Abnormal Return

18. Time Line Date α of Stock βof Stock Average Abnormal
Chamba Return
l Fertil.
2011 Before Announcement 11-05-2011 -0.133562393 0.20472193 -0.062928442
Date
Between Announcement -0.244781791 0.20025916 0.638907599
& Effective Date
After Effective Date 22-08-2011 -0.059505692 0.31504164 0.305304266
2010 Before Announcement 10-05-2010 -0.077689405 0.23914417 -0.189582755
Date
Between Announcement 0.020844098 0.17724465 0.175906306
& Effective Date
After Effective Date 30-07-2010 0.040268692 0.16370882 -0.015130935
2009 Before Announcement 15-05-2009 0.393679481 0.40917363 -0.522689862
Date
Between Announcement 0.339347472 0.39303988 -0.121250118
& Effective Date
After Effective Date 31-07-2009 0.104296865 0.34664127 -0.369603127

19. 100
120
20
40
60
80
-20
0
16/Apr/09
16/May/09
16/Jun/09
16/Jul/09
16/Aug/09
16/Sep/09
16/Oct/09
16/Nov/09
16/Dec/09
16/Jan/10
16/Feb/10
16/Mar/10
16/Apr/10
16/May/10
16/Jun/10
16/Jul/10
16/Aug/10
16/Sep/10
16/Oct/10
16/Nov/10
16/Dec/10
16/Jan/11
16/Feb/11
16/Mar/11
16/Apr/11
Cumulative Abnormal Return
16/May/11
16/Jun/11
16/Jul/11
16/Aug/11
16/Sep/11
Cumulative Abnormal Return

20. Time Line Date α of Stock βof Stock Average Abnormal
Colgate Return
Palm.
2011 Before Announcement 28-02-2011 -0.0897038 0.3966014 0.017319942
Date
Between Announcement 0.391096 0.5802192 -0.624528584
& Effective Date
After Effective Date 30-03-2011 -0.2038634 0.314159 0.74637381
2010 Before Announcement 12-03-2010 0.353534 0.182156 -0.271674424
Date
Between Announcement 0.1866136 -0.0035459 -0.434807281
& Effective Date
After Effective Date 08-04-2010 -0.322451 0.187161 0.649660682
2009 Before Announcement 05-11-2009 -0.3588097 0.3031181 0.878088304
Date
Between Announcement 0.2863221 0.1059293 -0.398867732
& Effective Date
After Effective Date 10-12-2009 0.1086828 0.1755104 -0.082578329

21. Cumulative Abnormal Return
40
30
20
10 Cumulative Abnormal Return
0
-10
-20

22. Time Line Date α of Stock βof Stock Average Abnormal
Dabur Return
India
2011 Before 27-04-2011 0.13929649 0.0199098 0.087447673
Announcement Date
Between -0.101516 0.0588309 0.428175518
Announcement &
Effective Date
After Effective Date 29-06-2011 0.03926023 0.3783828 -0.409861451
2010 Before 18-06-2010 0.20053937 0.4796145 -0.320748123
Announcement Date
Between 0.07117918 0.155819 0.086084449
Announcement &
Effective Date
After Effective Date 03-08-2010 -0.0196562 0.1392694 0.354836278
2009 Before 29-04-2009 0.91285993 0.1624618 -0.540408984
Announcement Date
Between 0.27379448 0.9412768 -0.481414999
Announcement &
Effective Date
After Effective Date 29-06-2009 0.12880184 0.029279 0.326366971

23. 10
15
20
25
30
-15
-10
0
5
-5
31/Mar/09
01/May/09
01/Jun/09
01/Jul/09
01/Aug/09
01/Sep/09
01/Oct/09
01/Nov/09
01/Dec/09
01/Jan/10
01/Feb/10
01/Mar/10
01/Apr/10
01/May/10
01/Jun/10
01/Jul/10
01/Aug/10
01/Sep/10
01/Oct/10
01/Nov/10
01/Dec/10
01/Jan/11
01/Feb/11
01/Mar/11
01/Apr/11
Cumulative Abnormal Return
01/May/11
01/Jun/11
01/Jul/11
Cumulative Abnormal Return

24. Time Line Date α of Stock βof Stock Average Abnormal
Grasim Return
Ind.
2011 Before 11-05-2011 -0.0669515 0.32714389 -0.223520484
Announcement Date
Between -0.0708648 0.4075699 0.012789226
Announcement &
Effective Date
After Effective Date 06-09-2011 -0.506736 0.54427863 1.051842707
2010 Before 20-05-2010 -0.0147284 0.46367152 -0.36671859
Announcement Date
Between 0.16557507 -0.0192491 -0.591090212
Announcement &
Effective Date
After Effective Date 10-08-2010 0.06673493 0.13687021 0.48651714
2009 Before 19-05-2009 0.03985455 0.73060735 0.857606542
Announcement Date
Between -0.0123489 0.37039405 0.447371768
Announcement &
Effective Date
After Effective Date 24-07-2009 0.31311246 0.5878563 -0.742792821

25. 10
20
30
40
50
0
-30
-20
-10
21/Apr/09
21/May/09
21/Jun/09
21/Jul/09
21/Aug/09
21/Sep/09
21/Oct/09
21/Nov/09
21/Dec/09
21/Jan/10
21/Feb/10
21/Mar/10
21/Apr/10
21/May/10
21/Jun/10
21/Jul/10
21/Aug/10
21/Sep/10
21/Oct/10
21/Nov/10
21/Dec/10
21/Jan/11
21/Feb/11
21/Mar/11
21/Apr/11
Cumulative Abnormal Return
21/May/11
21/Jun/11
21/Jul/11
21/Aug/11
21/Sep/11
Cumulative Abnormal Return

26. Time Line Date α of Stock βof Stock Average Abnormal
Hindalc Return
o Ind.
2011 Before 30-05-2011 -0.038673 0.33581552 -0.440635309
Announcement Date
Between 0.0090027 0.33732472 -0.326325791
Announcement &
Effective Date
After Effective Date 14-09-2011 0.3722306 0.48117364 -0.952835165
2010 Before 04-06-2010 0.1561584 0.40396936 -0.529264933
Announcement Date
Between 0.0453006 0.30317459 0.168749528
Announcement &
Effective Date
After Effective Date 24-08-2010 0.2290048 0.31554374 0.230749646
2009 Before 30-06-2009 -0.100818 0.27307249 0.138388157
Announcement Date
Between -0.020709 0.38862753 0.584239233
Announcement &
Effective Date
After Effective Date 10-09-2009 0.0630609 0.15246272 0.472439536

27. -140
-120
-100
0
20
-80
-60
-40
-20
02/Jun/09
02/Jul/09
02/Aug/09
02/Sep/09
02/Oct/09
02/Nov/09
02/Dec/09
02/Jan/10
02/Feb/10
02/Mar/10
02/Apr/10
02/May/10
02/Jun/10
02/Jul/10
02/Aug/10
02/Sep/10
02/Oct/10
02/Nov/10
02/Dec/10
02/Jan/11
02/Feb/11
02/Mar/11
02/Apr/11
02/May/11
02/Jun/11
Cumulative Abnormal Return
02/Jul/11
02/Aug/11
02/Sep/11
02/Oct/11
Cumulative Abnormal Return

28. Time Line Date α of Stock βof Stock Average Abnormal
Jindal Return
Stl. &
Power
2011 Before Announcement 21-04-2011 0.32532968 0.5714352 -0.357496245
Date
Between Announcement -0.054160032 0.4168271 -0.150903967
& Effective Date
After Effective Date 12-09-2011 0.127879171 0.4187233 -0.146102501
2010 Before Announcement 04-05-2010 -0.236870446 0.4032278 0.3586504
Date
Between Announcement 0.122460786 0.3725594 -0.155094795
& Effective Date
After Effective Date 13-09-2010 0.333089319 0.36001 -0.432572489
2009 Before Announcement 27-05-2009 0.723513023 0.351461 0.202651312
Date
Between Announcement 0.210421403 0.0411481 -0.605124544
& Effective Date
After Effective Date 14-09-2009 0.189117728 0.1780427 0.61904524

29. -180
-160
-140
-120
-100
0
-80
-60
-40
-20
28/Apr/09
28/May/09
28/Jun/09
28/Jul/09
28/Aug/09
28/Sep/09
28/Oct/09
28/Nov/09
28/Dec/09
28/Jan/10
28/Feb/10
28/Mar/10
28/Apr/10
28/May/10
28/Jun/10
28/Jul/10
28/Aug/10
28/Sep/10
28/Oct/10
28/Nov/10
28/Dec/10
28/Jan/11
28/Feb/11
28/Mar/11
28/Apr/11
Cumulative Abnormal Return
28/May/11
28/Jun/11
28/Jul/11
28/Aug/11
28/Sep/11
Cumulative Abnormal Return

30. Time Line Date α of Stock βof Stock Average Abnormal
LIC Return
Hou.
Fin.
2011 Before Announcement 28-04-2011 0.06564631 0.271874697 0.021251163
Date
Between Announcement -0.10502652 0.341946091 0.287830079
& Effective Date
After Effective Date 04-07-2011 -0.11763284 0.207557278 -0.523703611
2010 Before Announcement 28-04-2010 -0.11975004 0.26830935 0.251382093
Date
Between Announcement -0.07664377 0.414737861 0.318587036
& Effective Date
After Effective Date 29-06-2010 0.12845806 -0.01587279 0.46281933
2009 Before Announcement 23-04-2009 0.51865985 0.193001915 1.309257899
Date
Between Announcement -0.00392179 0.416041212 1.369322786
& Effective Date
After Effective Date 29-06-2009 0.24993254 0.520525548 -0.530849068

31. 20
40
60
80
100
120
140
180
160
-20
0
24/Mar/09
24/Apr/09
24/May/09
24/Jun/09
24/Jul/09
24/Aug/09
24/Sep/09
24/Oct/09
24/Nov/09
24/Dec/09
24/Jan/10
24/Feb/10
24/Mar/10
24/Apr/10
24/May/10
24/Jun/10
24/Jul/10
24/Aug/10
24/Sep/10
24/Oct/10
24/Nov/10
24/Dec/10
24/Jan/11
24/Feb/11
24/Mar/11
Cumulative Abnormal Return
24/Apr/11
24/May/11
24/Jun/11
24/Jul/11
Cumulative Abnormal Return

32. Time Line Date α of Stock βof Stock Average Abnormal
Shree Return
RenukS
ugars
2011 Before Announcement 27-09-2011 -0.01754829 0.412207065 0.156456378
Date
Between Announcement -0.30864134 0.203026033 -1.690170558
& Effective Date
After Effective Date 05-10-2011 0.25829605 0.461091546 0.107060801
2010 Before Announcement 22-09-2010 0.24374276 0.203471025 0.372411267
Date
Between Announcement 0.13724668 0.169418572 0.541962281
& Effective Date
After Effective Date 05-10-2010 -0.03041433 0.291753779 0.54640922
2009 Before Announcement 23-09-2009 0.33292595 -0.02596738 -0.051720317
Date
Between Announcement 0.36164834 0.429904364 -0.80923904
& Effective Date
After Effective Date 06-10-2009 -0.38698496 0.275786266 1.053753794

33. 10
20
30
40
50
60
70
80
0
-20
-10
25/Aug/09
25/Sep/09
25/Oct/09
25/Nov/09
25/Dec/09
25/Jan/10
25/Feb/10
25/Mar/10
25/Apr/10
25/May/10
25/Jun/10
25/Jul/10
25/Aug/10
25/Sep/10
25/Oct/10
25/Nov/10
25/Dec/10
25/Jan/11
25/Feb/11
25/Mar/11
25/Apr/11
25/May/11
25/Jun/11
Cumulative Abnormal Return
25/Jul/11
25/Aug/11
25/Sep/11
25/Oct/11
Cumulative Abnormal Return

34. Time Line Date α of Stock βof Stock Average Abnormal
Zee Return
Entrt.
Enter.
2011 Before Announcement 23-06-2011 -0.0819195 0.16630904 0.215440676
Date
Between Announcement 0.112421 0.17436564 -0.126497188
& Effective Date
After Effective Date 28-07-2011 -0.4745074 0.26630463 -0.134490444
2010 Before Announcement 23-09-2010 0.3344446 0.18696198 -0.321044832
Date
Between Announcement 0.2718675 0.10044447 -0.714429559
& Effective Date
After Effective Date 07-10-2010 0.1525947 0.348822 -0.174538442
2009 Before Announcement 29-06-2009 -0.0283284 0.20880691 0.481421847
Date
Between Announcement 0.1489693 0.16671908 0.086711612
& Effective Date
After Effective Date 06-08-2009 -0.0824857 0.32853582 0.51670745

35. 10
15
20
0
5
-30
-25
-20
-15
-10
-5
01/Jun/09
01/Jul/09
01/Aug/09
01/Sep/09
01/Oct/09
01/Nov/09
01/Dec/09
01/Jan/10
01/Feb/10
01/Mar/10
01/Apr/10
01/May/10
01/Jun/10
01/Jul/10
01/Aug/10
01/Sep/10
01/Oct/10
01/Nov/10
01/Dec/10
01/Jan/11
01/Feb/11
01/Mar/11
01/Apr/11
Cumulative Abnormal Return
01/May/11
01/Jun/11
01/Jul/11
01/Aug/11
Cumulative Abnormal Return

36. Major Findings:
After analyzing all tables and graphs I found that:
Market reacts to the Dividend information and Dividend policy.
Market reactions are different for different stock or scripts.
When Dividends are announced, on that particular date market returns are
positive or market will move at its pace, market will not react much.
When dividends are actually given i.e. on effective date market reacts strongly,
market gives negative returns.
Market returns are positive between Announcement date and Effective date in
most of the stocks. (Here 20 stocks are considered)
Market treats Announcement date of dividends as a Good News while Effective
date as a Bad News.

37. Thank You...