Do Stock Prices Fully Reflect Information in Dividends About Future Earnings?

32 Pages Posted: 20 Oct 1999

See all articles by Bruce K. Billings

Bruce K. Billings

Florida State University - Department of Accounting

Richard M. Morton

Florida State University - Department of Accounting

Date Written: September 1999

Abstract

We investigate (1) whether investors' earnings expectations include dividend information that is incremental to information in earnings components and (2) whether investors correctly weight the incremental information reflected in dividends. We find that both dividends and dividend changes are related to future earnings after controlling for earnings-component information, and that the market's earnings-expectation model reflects the incremental dividend information. However, we find that stock prices act as if investors overweight the incremental information in dividends and dividend changes in forming earnings expectations. Consequently, we find predictable future stock returns related to dividends and dividend changes after controlling for the relation between future returns and earnings components.

JEL Classification: G12, G14, G35, M41

Suggested Citation

Billings, Bruce K. and Morton, Richard M., Do Stock Prices Fully Reflect Information in Dividends About Future Earnings? (September 1999). Available at SSRN: https://ssrn.com/abstract=180622 or http://dx.doi.org/10.2139/ssrn.180622

Bruce K. Billings (Contact Author)

Florida State University - Department of Accounting ( email )

Rovetta Business Bldg. (RBA)
College of Business
Tallahassee, FL 32306-1110
United States
850-644-7889 (Phone)
850-644-8234 (Fax)

Richard M. Morton

Florida State University - Department of Accounting ( email )

Room No. 421
Tallahassee, FL 32306-8234
United States
850-644-7877 (Phone)

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