Dividend Policy and Market Movements
Kathleen P. Fuller
University of Mississippi - School of Business Administration
Michael A. Goldstein
Babson College - Finance Division
August 21, 2003
Using S&P 500 monthly returns as a proxy for market conditions, we investigate whether investors prefer dividend-paying stocks to non-dividend-paying stocks in declining markets. We find that dividend-paying firms have higher returns than non-dividend-paying firms, especially in declining markets. These results are robust for adjustments for risk using CAPM adjusted deciles, CAPM excess returns, the Fama-French three-factor model, and dividing the sample into size and book-to-market quartiles. Furthermore, we find that the simple payment of dividends, and not the level of the dividend yield, drives returns' asymmetric behavior relative to market movements, consistent with the signaling hypothesis of dividends.
Number of Pages in PDF File: 40
Keywords: Dividend policy, asymmetry, market movements
JEL Classification: G35working papers series
Date posted: January 4, 2006
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