Market Reaction to Dividend Announcement: An Empirical Study Using Event Study Technique

Abstract

The event study methodology is considered to investigate the impact of an event on a specific dependent variable. A generally used dependent variable in event studies is the stock price of the company. The definition of such an event study will be a study of the changes in stock price beyond expectation i.e., abnormal returns during the event window period. While employing event studies to measure the event impact, we may found the techniques to out perform the market. The event study methodology seeks to determine whether there is an abnormal stock price effect associated with an event. From this, the researcher can infer the significance of the event. The basic and indispensable assumption followed in the event study methodology is that the market is always efficient. In the efficient market, the impact of an event will be reflected immediately in the stock prices.