Dividend Pay Date Effect

Abstract

This thesis explores the potential price effects on dividend payment dates on the Oslo Stock Exchange (OSE), with a particular emphasis on the mechanisms of reinvestment and investor behavior. Utilizing a dataset of 1,094 dividend events from 2000 to 2024, the study applies event study methodology and regression analysis to investigate abnormal returns, cumulative abnormal returns and the relationship between dividend yield and stock returns.

The analysis finds no statistically significant cumulative abnormal returns (CAR) in the [0, +3] event window surrounding dividend payment dates. This contrasts with evidence from larger markets, such as the United States, where reinvestment-driven price effects are more noticeable. A key explanation include the dominance of institutional investors on the OSE, who often diversify dividends across portfolios. In addition, the absence of Dividend Reinvestment Plans (DRIPs), which have been shown to amplify price pressure in other markets, further diminishes the likelihood of reinvestment effects on dividend payment date.

High dividend yield stocks show slightly stronger abnormal returns than low dividend yield stocks within the immediate event window. However, the lack of statistical significance in the regression analysis highlights the challenge of attributing these price movements to reinvestment behavior.

This thesis improves understanding of how dividends affect stock prices by exploring the combined impact of investor behavior, stock ownership, and lack of DRIPs. It highlights the importance of local market dynamics in shaping price responses to dividend events, providing a foundation for future studies to explore these phenomena in greater depth.