The Role of Dividend Yields in Portfolio Optimization - Evidence from the CEE Market

Abstract

We investigate cross-sectional patterns related to dividends in the CEE stock market. We investigate a broad sample of 1153 companies from 11 countries in years 2002-2014. We use sorting and tests based on cross-sectional regression, and apply tests of monotonic relation. The principal findings are as follows. The high dividend stocks perform markedly better on a risk-adjusted basis, even after applying the classical three- and four factor models. This observation is supplemented with the evidence of monotonic relation: the higher dividend yields, the higher mean returns. However, the abnormal returns related to dividend yields are characteristic largely only for big- and midcaps. We find very weak evidence for the dividend premium across the micro stocks.