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Stock Market Reaction To Dividend And Political Information

Posted on:2016-09-24Degree:DoctorType:Dissertation
Country:ChinaCandidate:K D S k a n t h a v a r a t h Full Text:PDF
GTID:1109330467496664Subject:Business Administration
Abstract/Summary:PDF Full Text Request
In Sri Lanka, there is no much evidence study related to informational events. This study tries to get findings as to how and when the Sri Lankan stock market responds to dividend and political events, how stock prices are adjusted before and after the event date and what happen on the event date. The prime objective of this research is to examine the stock price reaction to dividends announcements and political events and a test of market efficiency by using a sample of278dividend and40major political events of the emerging Sri Lankan stock market during the period of2008-2012. Standard event study methodology is employed to find the results.The results show that positive Average Abnormal Returns (AARs) earn58percent of the window period and AARs (1.24percent) is strongly significant (t=2.27) at5%level on the dividend announcement date. This study finds that dividends have a stronger good signal and significant information content in the stock market. On average, market reacts positively to dividend announcement. Further, largest positive cumulative average abnormal returns (CAARs) of3.81percent are observed during the21days window period. Here, investors generally believe that this event will result in incremental positive future cash flows of the stock market. On the other hand, this delayed market response supports the inefficient dissemination of information to stock market participants since stock price adjusts very slowly to dividend announcement information so that stock market participants can earn significant abnormal returns by trading in the stock after the announcement. The results show that market is not informational efficient and it is not efficient in the semi-strong form under the firm related informational event. The results of political events show that biggest impressive negative AARs of-2.27percent produced on the political event date which is strongly negative significant (t=-3.27) at1%level.This results indicates that political events have a stronger bad signal and negative significant information.On average, market reacts negatively to market related informational event. Further, largest negative cumulative average abnormal returns (CAARs) of-1.71percent is found during the21days window period. In this negative CAARs, investors overall believe that this event result in incremental negative future cash flows of the stock exchange of Sri Lanka. In addition to these findings, this speed market response support to the efficient dissemination of information to stock market participants since stock price adjusts very quickly to political risk information. Furthermore, stock market participants cannot earn abnormal returns by trading in the stock after the event day. Despite, the event day is unprofitable, the results show that market is informational efficient under the market related informational event.
Keywords/Search Tags:Average abnormal returns, Dividend announcement, Event day, Event study, Political event
PDF Full Text Request
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