Dividend Information Research Articles

Quality issues of implied volatilities of index and stock options in the OptionMetrics IvyDB database

AbstractFor stock and index options in the United States, OptionMetrics records prices at 3:59 p.m., not 4:00 p.m. as assumed in previous literature. The resulting 1‐min time discrepancy with closing share prices creates artificial variability in implied volatility spreads and strongly affects market‐wide spreads. It leads to particularly large distortions at the onset of the COVID‐19 pandemic. For index options in Europe, OptionMetrics data show large deviations from put‐call parity even though the original option prices match the parity exactly. Finally, the implied volatilities of stock options in Europe show clusters of exceptional deviations due to incorrect dividend information.

Investor Limited Attention, Opinion Divergence, and Post-earnings-announcement Drift: Evidence from China

ABSTRACT The study provides new evidence for the limited attention theory in explaining post-earnings-announcement drift (PEAD) by using the data of stocks listed in Shanghai and Shenzhen A-shares from 2000 to 2020. We introduce two types of inattentive investors: one ignores the market or industry information, while the other ignores the dividend information in a theoretical model and show that the effect of investors’ opinion divergence induced by inattentive investors drives the post-earnings-announcement drift (PEAD). The empirical test supports the testable hypothesis based on the model. When investors’ expectations of future stock prices are more inconsistent, the PEAD effect is more significant after the earnings announcement. Furthermore, the findings remain robust after a series of robustness tests, including the transformation of the variable definitions and the replacement of the study interval. And this positive relationship between opinion divergence and PEAD is more significant in the groups with low information transparency and poor corporate governance. The study provides new and direct evidence of investors’ concerns about the impact of market efficiency and regulators’ recommendations to promote the long-term development of China’s financial markets.

Share Price As Dependent Of Basic EPS Or DPS – A South African Perspective

Investors consider both earnings and dividend information when analysing the performance of an entity (Koppeschaar Koppeschaar, Sturdy, Du Toit, Deysel, Rossouw, Van Wyk, Gaie-Booysen, Papageorgiou, Smith & Van der Merwe, 2015). The objective of the study was to determine whether the share price performance of the top 40 JSE listed companies depend more on BEPS or DPS. The study focused on the top 40 JSE listed firms as sample, while data were collected for the period 2012 to 2016. Information was gathered on EPS, DPS and share prices with aid of the INET BFA database. Collected data were analysed through application of SPSS, by measuring Pearson correlation coefficients and performing paired t-tests.
 Study limitations included that the sample size was limited to 40 observations, that a limited analytic period was used (2012-2016) and that the study relied on the accuracy of information provided by the INET BFA. Generalisation of research findings is therefore limited. Despite limitations, the study made a worthy contribution by indicating that investors of the top 40 JSE listed firms should rather rely on earnings measures (BEPS) than return measures (DPS) when making investment decisions, because it was statistically proven that BEPS delivers higher Pearson correlation coefficients than DPS when correlations modelling is performed for the selected analytic period.

Analyst Dividend Forecasts and Their Usefulness to Investors

ABSTRACTIn contrast to the disappearing dividends view prevalent in the literature, we document extensive dividend payments by firms and significant variability within firms and across 16 countries during 2000–2013. We predict that within-firm variability in dividends increases investor demand for forward-looking dividend information, and analysts respond by producing informative dividend forecasts. We find that analyst dividend forecasts are available for most dividend-paying firms and are more prevalent for firms with higher variability of dividends. Analyst dividend forecasts are more accurate than alternative proxies based on extrapolations of past dividends. Finally, dividend forecasts (1) are incrementally useful to investors beyond information in other fundamentals, such as earnings and cash flow forecasts, (2) help investors interpret earnings quality, and (3) are associated with investors' portfolio allocation decisions.Data Availability: Data are available from the public sources cited in the text.

Heaping on Dividends: The Role of Dividend Size and Information Uncertainty

The authors examine whether a cognitive bias influences dividend policy. They find that managers use a heaping heuristic when choosing the amount of their firm’s dividend. Heaping is a human error or bias to round numbers even though precise values are desired. This bias leads to dividend distributions clustered at specific amounts. Dividend size and the level of information uncertainty faced by management help explain the likelihood of heaping. The authors also observe that heaped dividends are “sticky” and altered less frequently, and when there is a dividend change, heaped dividends are more often switched to another heaped amount.

Dividend Policy, Signaling Theory: A Literature Review

With imperfect market hypothesis, it is widely accepted that announcements of dividend payouts affect firm value. An explanation has been proposed with the cash flow signaling theory and the dividend information content hypothesis. This original explanation, was developed in theoretical models by Bhattacharaya (1979), John and Williams (1985) and Miller and Rock (1985). All these authors argue that since managers possess more information about the firm's cash flow than do individuals outside the firm and they have incentives to convey that information to investors in order to inform the true value of the firm. This paper aims at providing the reader with a comprehensive understanding of dividend policy by reviewing the main theories and empirical findings under this signaling hypothesis.

Effect of Dividend on Stock Price: A Case of Fuel and Power Industries in Bangladesh

Dividend policy is an extensively researched topic in the arena of investments but still it remains an enigmatic that whether Dividend Policy affects the Stock Prices or not. The consequences of researches conducted in different stock markets are different. In Bangladesh, capital market investment is very essential and significant for the growth and market capitalization of domestic industry, trade and commerce. In current years Bangladesh had faced many precarious situations in its stock market. The Stock price reactions to the declaration of dividend of the fuel and power industry of Bangladesh are empirically examined. This study examines stock price reactions of listed dividend paying fuel and power industries in Dhaka stock exchange, Bangladesh for period of 11 years from of 2008-2018. This study will help us to make effective dividend decisions and effective implementation of dividend policies. In this study, Fixed Effect Model along with Random Effect Model have been used to estimate results. Both Models are implemented on panel data for explaining the association between dividend payments and share prices while controlling logarithm value of Profit after Tax, Earnings per Share and Return on Equity. The research is accompanied with a view to find whether the dividend announcement convey any evidence to the market that results a stock price volatility for adjusting the dividend announcement information while controlling the variables like Profit After Tax Earnings, Per Share and Return on Equity. The study also tested both the Models and found Random Effect Model is more significant than Fixed Effect Model. The result documented on the Random Effect Model shows that there are significant relationship with Retention Ratio, dividend per share and Return on Equity. In addition, Profit after tax shows the negative significant association and Earning per Shares insignificant with the share prices in Bangladesh Fuel and Power sector.

Pengaruh Free Cash Flow, Operating Cash Flow, dan Dividend Payout Ratio Terhadap Nilai Perusahaan

This research examines the impact of free cash flow, operating cash flow, and dividend payout ratio on the firm value which is represented by stock return.
 This research employees a multiple linear regression analysis to test the hypothesis. Samples used in this research are 159 manufacturing companies registered in Indonesia Stock Exchange for the period of 2013, 2014, and 2015.
 This research reveals that free cash flow and operating cash flow have no significant impact on the firm value. Those variables seem having no important contents in the point of view of investors. Therefore they do not response to the information. However, this research proves that dividend payout ratio have significant impact on the firm value. It can be concluded that dividend payout ratio is more important than those of free cash flow and operating cash flow. Investors will positively response to the dividend information and it will significantly increase the firm value.

The First 50 Years of the US Stock Market: New Evidence on Investor Total Return Including Dividends, 1793-1843

Little is known about the performance of the US stock market before 1802, and evidence for the years following 1802 through the 1830s remains scanty. This paper describes a new database on total returns in the US stock market for the first fifty years of its existence, constructed in large part from data compiled by Sylla, Wilson and Wright (2006), combined with dividend information newly obtained from contemporaneous newspapers, along with information on capital stock obtained from contemporaneous directories. The new evidence clarifies the role and prominence of the New York market as compared to those of Boston, Philadelphia, and Baltimore. The outcome is a capital-weighted estimate of total returns over five decades. This estimate does not support Siegel’s (2014) thesis that multi-decade returns in the US market have always been on the order of 6.6% real, compounded. The paper concludes by considering explanations for the sub-par performance of the US stock market during this early period. [This paper has been superseded by later work. See revision notes that follow this abstract.]

Heaping on Dividends: The Role of Dividend Size and Information Uncertainty

In this paper we contribute to a line of literature that examines behavioral biases that impact important corporate decisions. Our paper builds on prior articles that examine heaping or rounding of EPS forecasts. Herrmann and Thomas (2005), Bamber, Hui and Yeung (2010) and Dechow and You (2012) observe that firm managers and analysts systematically round EPS forecasts. They also find more rounding for EPS forecasts with larger magnitude, and when management or analysts face higher levels of information uncertainty. In this study we examine whether dividend policy is also affected by rounding and the heaping heuristic. The previous literature that examines heaping related to corporate earnings focuses on heaping in earnings forecasts, however our study focuses on heaping in actual distributed dividends that directly impact key firm characteristics such as firm capital structure, investor returns and overall firm performance. From 1926 through 2015 we report 51.40% of dividends are heaped. In the earlier years, dividends are almost always heaped, but heaping declines through time. In some years 100% of quarterly dividends are heaped. We find heaping is significantly related to dividend size, and the level of information uncertainty faced by firm management. Of the uncertainty metrics, inverted firm size has the strongest relation with the likelihood of heaping. We also observe that heaped dividends are altered less frequently, and when there is a dividend change to a previously heaped dividend it is more often an increase or decrease to another heaped amount.

The Influence of Information Framing towards Investors Reaction in Bullish and Bearish Market Condition: an Experiment

This research aims to test the reaction of the investors when the investors receive a dividend information presented with positive or negative frames at the same market conditions, either bullish or bearish market conditions. In addition, it also test the reactions of investors when they are in the bullish or bearish market conditions, the investors receive a dividend information with the same frame, both positive and negative frames. The investors reaction is indicated by the magnitude of the stock price prediction on the next day with absolute value. Experimental method is used to test the hypotheses in this research by using independent sample t-test. The results showed that there is an information framing effect to the investors when receiving the information with a positive frame in the bullish market conditions and gain domain effects occur to the investors in the bullish market conditions when the investors receive the information with a positive frame. These results are expected to provide a new insight on the different reactions of investors when receiving the same information.

Option Implied Dividends Predict Dividend Cuts: Evidence from the Financial Crisis

AbstractWe employ the forward‐looking implied dividend information contained in option prices to predict dividend cuts and omissions during the recent financial crisis. The large number of dividend cuts and omissions during the 2008–09 financial crisis period provides the opportunity to study the predictability of dividend cuts in a controlled environment. Implied dividends and implied volatility, based on put–call parity and computed from put and call option prices, prove to be effective in predicting those cuts, especially compared to only using the equity market and accounting variables conventionally used for this purpose. Options‐derived variables (implied dividends and implied volatility) enhance the ability to identify firms more likely to reduce or omit dividend payments.

Relationship between Dividend Information Signal Effect and Accrual

본 논문에서는 1981년부터 2013년 동안 거래소시장에 상장된 비-금융기업을 대상으로 배당과 이익의 질간의 관계를 실증 검증한다. 일반적으로 경영자는 이익 보고 시에 이익조작 유인이 존재하며 이러한 조작을 통하여 기업성과를 과대 포장 하려는 의도가 있을 것이다. 배당의 경우 시장에 정보전달역할, 즉 미래이익에 대한 전망을 제시하지만 또한 이러한 배당정보 전달이 이익의 질과도 밀접한 관계를 가지고 있음이 최근 제시되고 있다. 즉 이익조작에 의해 기업의 이익이 유의적으로 영향을 받지않는다는 것을 경영자가 느낄 때 배당을 증가시키려는 유인이 존재한다는 것이다. 이러한 기존 연구결과를 기초로 한국 거래소에 상장된 비금융기업을 대상으로 배당과 발생액을 기초로 한 이익의 질 간에 실증분석 결과는 다음과 같다. 첫째, 기업의 배당성향은 이익의 질이 낮아짐에 따라 오히려 증가하는 현상이 나타났으며 이러한 결과는 미국 등 외국 기업의 특성과 상반되는 결과를 제시하고 있다. 둘째, 배당 기업 중 이익의 질이 높을수록 배당을 보다 많이 지급할 확률이 높다는 결과를 제시하였다. 셋째, 이익의 질이 낮을수록 오히려 배당지급을 증가시킨다는 결과를 제시하고 있다. 이러한 결과들은 미국 기업들과 달리 배당과 이익의 질간 다른 결과를 보여주고 있다.

Information tradeoffs in dynamic financial markets

In dynamic financial markets the stochastic supply of risky assets has a significant informational role. Contrary to static models, where it acts as “noise,” in dynamic markets stochastic supply contains information about risk premiums. Acquiring private dividend information helps investors disentangle dividend information from discount-rate information contained in prices. For uninformed investors, however, as more informed investors enter the economy prices become more informative about dividends but less informative about discount rates. This tradeoff creates complementarities in information acquisition and multiple equilibria in the information market.

BUBBLES, CRASHES, AND ENDOGENOUS UNCERTAINTY IN LINKED ASSET AND PRODUCT MARKETS*

In laboratory asset markets, subjects trade shares of a firm whose profits in a linked product market determine dividends. Treatments vary whether dividend information is revealed once per period or in real time and whether the firm is controlled by a profit‐maximizing robot or human subject. The latter variation induces uncertainty about firm behavior, bridging the gap between laboratory and field markets. Our data replicate well‐known features of laboratory asset markets (e.g., bubbles), suggesting these are robust to a market‐based dividend process. Compared to a sample of previous experiments, both real‐time information revelation and endogenous uncertainty impede the bubble‐mitigating impact of experience.

Predictive Regressions Based on Ex Ante Index Futures Market Information

The index futures market allows for accurate measure of expected dividends from the aggregate stock market. This paper uses the dividend information exclusively extracted from the S&P 500 futures market to construct the implied dividend yield, implied capital gains and novel measures of cash flow characteristics such as equity duration and convexity as improved predictors for excess market returns. For the period from April 1982 to December 2008, the implied dividend yield, equity duration and convexity have substantial predictive power for equity premium, both in-sample and out-of-sample, over both short- and long-horizon. The implied dividend yield outperforms the historical dividend yield which has severe limitations in forecasting returns. The equity duration and convexity negatively predict the excess returns, which is in line with the findings of a downward sloping term structure of equity premium documented in Binsbergen, Brandt and Koijen (2012). Given the insight that implied dividend yield and implied duration are actually the two different versions of the same type of measure, this paper highlights the important role of cash flow characteristics in the determination of time-varying expected returns.

Analyst Dividend Forecasts and Their Usefulness to Investors: International Evidence

Recent finance and accounting studies indicate that dividends are ‘sticky’ and declining in economic importance. If so, there should be little investor demand for analyst dividend estimates and analyst dividend forecasts should simply mirror time-series estimates. We examine firms from 16 countries spanning 2000-2013 and find that only 25% of firms exhibit sticky dividends, while the majority either increase (54%) or decrease (21%) their annual dividends. In contrast to the disappearing dividends view, we predict that this high variability in dividend payments across stocks actually increases investor demand for dividend information. Accordingly, analysts respond to this demand by producing informative dividend forecasts. Our analysis indicates that analysts’ dividend estimates are indeed useful to investors because they (i) are more accurate and better aligned with market dividend expectations than other estimates, such as standard time-series modelling approaches, (ii) convey incremental information to the market beyond that contained in other fundamentals, and (iii) help investors interpret the persistence of earnings news.

Stock Prices Reaction to Dividend Announcements: A Study on Listed Companies in the Damascus Securities Exchange

According to the signaling theory, dividend announcements are usually considered as a signal to the investors, about firm’s future performance, that results in stock prices changes. This study attempts to investigate the stock prices response to dividend announcement in the Damascus Securities Exchange. The purpose of the study is to identify whether there are any significant abnormal returns around the public announcement of dividend. An event study methodology is used for an event window of forty days surrounding the announcement day. Research results indicate that most average abnormal returns are statistically insignificant, whereas the cumulative average abnormal returns are statistically significant for the whole event window. The downward drift of the cumulative average abnormal returns six days after the announcement suggests that prices don’t adjust immediately to dividend information. The stock reactions appear within post-event window gradually in response to the dividends announcement.

Do Stock Prices Move Too Much to Be Justified by Changes in Cash Flows? New Evidence from Parallel Asset Markets.

We take advantage of two parallel markets for a set of cash flows to show that better cash flow measurement improves the performance of a dividend discount model. Unlike previous literature, we use out-of-sample estimation. We construct a natural laboratory, by using a unique dataset of commercial real estate and augmenting the dividend information for REITs with cash flow information from this parallel market. The results improve dramatically when information from direct property cash flows is added. These findings suggest that the performance of dividend pricing models improves greatly with better measurement of cash flows, and thus contribute to the resolution of the excess volatility puzzle.

Open Market Repurchase Program, Dividend Payment Status, Information Asymmetry, and Institutional Ownership

This paper examines the relationship between previous dividend payment policy and the cumulative abnormal return around the OMR program announcement day. The results show that the market reacts more positively to OMR program announcements by non-dividend firms or with no change in dividend payment than to those of dividend paying or changing in dividend payment firms. We also provide evidence that dividend activities mitigate the effect of information asymmetry caused by ownership structure. Finally, after the 2003 tax cut, the market has also reacted less positively to open market repurchase announcements than before 2003.