A Study of Reaction of Stock Prices to Dividend Announcements and Market Efficiency

The present study investigates the reaction of stock prices to dividend announcements by testing the semi-strong form of market efficiency. It analyzes the dividend announcement of 5 companies representing various sectors listed on the BSE for 2013. Abnormal returns from the market model are evaluated for statistical significance using the CAPM model and Paired t-test. The findings suggest that there is no significant difference in the impact of dividend announcements in pre and post announcement period on the share prices of the selected companies.

Keywords: Stock Prices, Market Efficiency, Dividend Announcements.

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