Dividend Price Pressure on Oslo Stock Exchange: Assessing the effect of dividend reinvestments on daily market returns

Abstract

This thesis assesses the existence of dividend price pressure on Oslo Stock Exchange by measuring daily market returns against aggregate dividend payment yields. The thesis studies the period from January 2005 to November 2020. We find evidence that predictable cash inflows from dividend reinvestments lead to abnormal daily market returns when controlling for oil price and global market variation. The base regression shows that a 0.1% increase in the aggregate daily dividend yield predicts increased daily value weighted market returns of 2.5 basis points. We also find that days in the top 5 of the recent rolling year’s largest aggregate dividend payment yields exhibit significantly higher returns with control variables. However, alternative measurements place doubt on these results. Also, we test but cannot conclude whether the substantial state ownership on Oslo Stock Exchange affects obtained results. When excluding control variables, we find no evidence that predictable price pressure exists. Considering that we find no evidence without control variables, and somewhat unsteady evidence with, it comes as no surprise that the economic significance of the studied effects is highly limited. The magnitudes of the results are miniscule and, for an investor on the Oslo Stock Exchange, next to completely irrelevant.