Nepalese Stock Market Efficiency in Respect of Cash and Stock Dividend Announcement

Dr. Jeetendra Dangol .


This paper examines the abnormal returns of dividend announcements such as cash dividend, stock dividend, and both cash and stock dividend in the Nepalese stock market using the market model of event methodology after adjustment of existing thin-trading problem. To examine the abnormal returns of dividend announcements, 139 dividend announcement samples were partitioned into dividend-initiation (good-news), dividend-increase (good-news), dividend-decrease (bad-news), and no dividend-change (no-news) sub-samples. The positive excess returns on stock dividend announcement were found during the announcement day, indicating the Nepalese investors seek for stock dividend than cash dividend. The negative abnormal returns were found much higher on the cash dividend announcement day in the dividend-decrease case. As dividend signalling hypothesis and efficient market hypothesis, the no dividend-change announcements sub-sample shows that the entire 21-days event-window has insignificant abnormal returns. The dividend announcements have a signalling effect in the Nepalese stock market. The study also found that, to some extent, the Nepalese stock market supported the semi-strong form of market efficiency.


Efficient market hypothesis, Dividends announcement, Event methodology, Signalling effect, Abnormal returns

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