Investor overreaction and the ex-date price behavior of stock dividends: evidence from the Taiwan Stock Exchange

• Published in: Journal of statistics & management systems Vol. 13; no. 1; pp. 1 - 26
• Main Authors: Jiang, Ching-Hai, Huang, Yen-Sheng
• Format: Journal Article
• Language: English
• Published: Taylor & Francis Group 01.01.2010
• Subjects: Ex-date of stock dividend; overreaction hypothesis; Taiwan stock market
• ISSN: 0972-0510; 2169-0014
• DOI: 10.1080/09720510.2010.10701453

This paper examines the ex-date price behavior of stock dividends for all stocks listed on the Taiwan Stock Exchange. The sample involves 2056 ex-dates of stock dividends from 473 firms. The results indicate a significantly positive abnormal return of 1.99% on the ex-date of stock dividends. The ex-date abnormal return is positively related to the stock dividend. The average ex-date abnormal return increases from 1.21% for the smallest stock dividend quintile to 3.65% for the largest stock dividend quintile. Moreover, the result indicates a significant overreaction pattern in the 15-day pre-exdate period and the 90-day post-ex-date period for quintiles sorted by stock dividend. The cumulative abnormal return is positively related to stock dividend in the pre-ex-date period, but negatively related to stock dividend in the post-ex-date period. In the 15-day pre-exdate period, the cumulative abnormal return increases from -1.66% for the smallest stock dividend quintile to 1.13% for the largest stock dividend quintile under the market model. In contrast, the cumulative abnormal return decreases from 6.14% for the smallest stock dividend quintile to -9.58% for the largest stock dividend quintile in the 90-day post-exdate period.