Dividends and market efficiency: a multi-index arbitrage investment strategy

Article Abstract:

Keywords: Accounting research, Dividends, Share prices, Modelling, USA This paper employs both a multi-index model and linear programming to create a short and long portfolio of securities that have identical ex-post risk levels. While the two portfolios have identical ex-post risk, the long portfolio is composed of stocks with high dividend yields and the short portfolio is composed of stocks with low dividend yields. By shorting the low dividend yield portfolio and purchasing the high dividend yield portfolio, we create a zero investment portfolio with identical risk patterns. We then examine whether investors can earn an abnormal return on this Investment Strategy in a subsequent testing period. This paper adds to the dividend literature in three primary areas. First, it provides a more powerful and robust model for analyzing the relationship between dividends and stock returns than single-index model. Second, it helps resolve the dividend relevancy question by rejecting the Dividends Increase Returns Theory. Third, we find that our investment strategy provides ex-ante information for investors to earn an abnormal return that does not support market efficiency.

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Executive Long-Term Performance Contracts: An Empirical Analysis of Market Risk, Investment Opportunities and Leverage in the Post-Adoption Period

Article Abstract:

Keywords: Risk, Managerial Ownership, Asset Return, Volatility We examine the changes in the risk characteristics of firms that adopt long-term performance plans where compensation is directly linked to stock price performance. Consistent with the theory that an increase in managerial ownership decreases the degree of managerial risk aversion, we find significant changes in the risk characteristics of the firms in the post-adoption period. Specifically, we find that three measures of risk - beta, asset return volatility, and leverage - increase in the post-adoption period. Our results remain robust when these measures are compared with those of matched firms.

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Dividends and market efficiency: a multi-index arbitrage investment strategy

Article Abstract:

A multi-index model and linear programming are used to analyze the relationship between dividends and stock returns of two portfolios that have equal risk factors.The stocks in one portfolio have high dividend yields, while the other portfolio contains stocks with low dividends.

Investment advice, Investment Advisory Services, Statistical Data Included, Analysis, Dividends, Portfolio management, Investment advisers

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