Impact of Dividend Announcement on Stock Returns and Market Efficiency in India

The announcement of dividend can be seen in two perspectives: if the dividend that is announced is up to expectations of shareholders, the market price of the shares will be positively affected. Whereas, if the dividend that is announced is not up to expectations of the equity investors, the market price of the shares will be negatively affected. Market efficiency is defined as the amount of time it takes for the stock market to react to announced public information. Finally, when a market is strong-form efficient, investors are unable to earn above normal returns by relying on both public and private information. This research is an attempt to find out the relationship between dividend announcement and the market efficiency. This paper explores the market reaction to dividend announcements of BSE SENSEX stocks for the period 2014-2017 using Event study methodology.