The Impact of Dividend Announcements on Share Prices and Trading Volume ( A Study of Semi-strong form of Market Efficiency )

Abstract

The aim of this research is to examine the stock market reaction to dividend announcements in emerging markets of Pakistan. All news which comes to the market has its own impact on the share prices, and its trading. Every investor reacts towards the information in accordance to their level of understanding. The announcement of dividend is a vital information for any investor and this particular information carries great insight about the company. This study is performed to test the efficiency of the oil and gas sector of Pakistan. The sample include the oil and gas sector of Pakistan, including 12 companies in which 10 companies are included in the KSE 100 index which represents the significance of this sector. The study includes the event study method to measure the impact of dividend of stock pieces and the trading volume. The results from the event study analysis shows that the market is inefficient because of the outflow of insight before the declaration, and the suspension of share price modification. In addition, the study reports significant trading volume “TV” response, lending backing to the hypothesis that the dividend changes announcements have an impact on the trading volume reaction due to different investors’ opinion. For future research this study can be conducted on the entire KSE‐100 index or on the listed companies of PSX. The third form of effective market hypothesis can be tested by using more advanced methods