Reaction of Stock Price to Dividend Announcement and Market Efficiency in India

Abstract

The announcement of dividend can be seen in two perspectives: if the dividend that is announced is up to expectations of shareholders, the market price of the shares will be positively affected. Whereas, if the dividend that is announced is not up to expectations of the equity investors, the market price of the shares will be negatively affected. Market efficiency is defined as the amount of time it takes for the stock market to react to announced public information. Finally, when a market is strong-form efficient, investors are unable to earn above normal returns by relying on both public and private information. This research is an attempt to find out the relationship between dividend announcement and the market efficiency.