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Risk Shift Following Dividend Change Announcement: The Role of Trading Volume

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Abstract

This study investigates the role of the trading volume in explaining the shift of firm's total and systematic risk when a dividend change is announced. We compared the differential interpretation hypothesis and pre-announcement disagreement hypothesis with more than 20,000 samples collected for 30 years. We found that the total risk generally increases regardless of the level of abnormal trading volume, which supports the differential interpretation hypothesis. We also found a positive relationship between announcement-period abnormal trading volume and post-announcement changes in beta, which is only consistent with the differential interpretation hypothesis. However, the decrease in beta for the majority of sample firms is only consistent with the pre-announcement disagreement hypothesis.

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Author information

Authors and Affiliations

  1. Department of Management, College of Management, University of Massachusetts Lowell, Lowell, MA, 01854, U.S.A.

    Dr. Sangphill Kim

  2. Department of Accountancy, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong

    Dr. Oliver M. Rui

  3. Prudential Investment, Short Hills, NJ, 07078

    Dr. Peter Xu (Manager of Research)

Authors
  1. Dr. Sangphill Kim
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  2. Dr. Oliver M. Rui
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  3. Dr. Peter Xu
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Correspondence to Dr. Sangphill Kim.

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Kim, D.S., Rui, D.O.M. & Xu, D.P. Risk Shift Following Dividend Change Announcement: The Role of Trading Volume. Review of Quantitative Finance and Accounting 19, 45–63 (2002). https://doi.org/10.1023/A:1015778208868

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  • DOI: https://doi.org/10.1023/A:1015778208868

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