Reaction of Vietnamese stock market to dividend announcements

Abstract

Emerging equity market potentially consists of many determinants of share prices. The purpose of this study is to identify whether investors can perform a superior analysis to make abnormal returns by relying on the dividend announcements. Using standard event study methodology, this study tests the reactions of stocks on Ho Chi Minh Stock Exchange toward the cash and stock dividend announcements. 40 companies across different industries with 152 announcements made during 2008 and 2010 are collected to be the samples. After the observations on the abnormal returns and cumulative abnormal returns during 61 days around the announcement date, the results suggest that stock prices do not adjust so fast to the information on the declaration date, rather it react s positively one day after that. The evidence also suggests a sign of ex dividend effect which strongly exists in HOSE. The value of AAR and CAAR drop significantly until 30 days after the announcement confirm that stocks traded without dividends discourage investors to buy or hold. With the evidence of existence of the abnormal returns after the announcement date, the semi strong EHM is violated in HOSE.