Using UK Data to Study the Effects of Dividends Announcements on Stock Market Returns

Using a sample of firms listed on the FTSE-350, this study examines the effects of dividends announcements on the London Stock Exchange (LSE) during the period from 1990 to 2019. We use the dividend-signalling hypothesis to test whether dividends announcements have any effects on stock returns. Our results suggest that dividend increase announcements have a positive effect on stock returns, and dividend decrease announcement reduces stock returns. On average, a dividend increase is estimated to increase stock returns by 6 basis points and a dividend decrease is estimated to reduce stock returns by the same amount. These findings are consistent with the dividend-signalling hypothesis.