Question

Event studies of dividend omissions indicate that:

a. this type of announcement generally has no effect on abnormal returns.

b. the cumulative abnormal return remains constant when this type of announcement is made.

c. stock returns are positively, and efficiently, impacted when dividend omission announcements are made.

d. this type of an event is incorporated into stock prices slowly over a 10-day period.

e. the cumulative abnormal return declines on the day prior to and the day of the announcement.

Answer 1

The answer is option “e” - the cumulative abnormal return declines on the day prior to and the day of the announcement.

Explanation – Announcements of dividend omission indicates difficulty in predicting future income and the market reaction to the omission dividend announcement supports the hypothesis of the market efficiency of the half-strong form.