Seven Decades of Long Term Abnormal Return Persistence: The Case of Dividend Initiations and Resumptions

53 Pages Posted: 21 Feb 2000

See all articles by Rodney D Boehme

Rodney D Boehme

Wichita State University - Department of Finance, Real Estate & Decision Sciences (FREDS)

Sorin M. Sorescu

Texas A&M University - Department of Finance

Date Written: January 11, 2000

Abstract

We analyze the one- to five-year post-announcement stock performance of firms that either initiate cash dividends or resume the payment of cash dividends after a hiatus in payments. Both the event-window and long-run abnormal stock returns are significantly positive, suggesting that the market initially underreacts to the typical firm's dividend announcement. This result also holds for subsets of the 1927 to 1998 time period, suggesting that the observed anomaly is persistent across time and is neither merely a result of data mining nor driven by an ephemeral phenomenon that is confined to a particular time period. Firms that have positive abnormal returns during the announcement period are shown to have the highest post-announcement abnormal returns. A naive investment strategy of establishing long and short positions on firms that experience positive and negative announcement period abnormal returns, respectively, produces persistent positive abnormal returns across the entire 1927-1998 sample period.

JEL Classification: G14

Suggested Citation

Boehme, Rodney D and Sorescu, Sorin M., Seven Decades of Long Term Abnormal Return Persistence: The Case of Dividend Initiations and Resumptions (January 11, 2000). EFA 0028. Available at SSRN: https://ssrn.com/abstract=204437 or http://dx.doi.org/10.2139/ssrn.204437

Rodney D Boehme

Wichita State University - Department of Finance, Real Estate & Decision Sciences (FREDS) ( email )

Wichita, KS 67260-0078
United States

Sorin M. Sorescu (Contact Author)

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States
979-458-0380 (Phone)

HOME PAGE: http://wehner.tamu.edu/finc.www/ssorescu/

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