Dividend Policy and Market Movements

40 Pages Posted: 4 Jan 2006

See all articles by Kathleen P. Fuller

Kathleen P. Fuller

University of Mississippi - School of Business Administration

Michael A. Goldstein

Babson College - Finance Division

Date Written: August 21, 2003


Using S&P 500 monthly returns as a proxy for market conditions, we investigate whether investors prefer dividend-paying stocks to non-dividend-paying stocks in declining markets. We find that dividend-paying firms have higher returns than non-dividend-paying firms, especially in declining markets. These results are robust for adjustments for risk using CAPM adjusted deciles, CAPM excess returns, the Fama-French three-factor model, and dividing the sample into size and book-to-market quartiles. Furthermore, we find that the simple payment of dividends, and not the level of the dividend yield, drives returns' asymmetric behavior relative to market movements, consistent with the signaling hypothesis of dividends.

Keywords: Dividend policy, asymmetry, market movements

JEL Classification: G35

Suggested Citation

Petrie Fuller, Kathleen and Goldstein, Michael A., Dividend Policy and Market Movements (August 21, 2003). Available at SSRN: https://ssrn.com/abstract=437700 or http://dx.doi.org/10.2139/ssrn.437700

Kathleen Petrie Fuller

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

Michael A. Goldstein (Contact Author)

Babson College - Finance Division ( email )

320 Tomasso Hall
Babson Park, MA 02457-0310
United States
781-239-4402 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://faculty.babson.edu/goldstein/

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