The goal of the study is to test the information content of dividend announcements by
examining aggregate market reaction on the volume of trading and prices of shares
around the declaration dates. The study relies upon the substantial evidence, which
supports market efficiency in the semi-strong form. The significant trading activity and
price changes in days following the announcement are somewhat surprising. The most
significant price changes and excess trading volume occurred the days prior to and the
day the dividend announcement dates of the sample observations during the period under
study. Although, on average, the stock market may adjust rapidly in an unbiased manner
at individual level, there seems to be several days of adjusting prices and portfolios. The
trading activities during the days prior to the dividend announcement could be due to a
misspecification of the dividend announcement. The study finds bulk amount of trading
volume and price changes of shares occurring the days prior to the announcement date.
In nonparametric tests on the absolute volume and return residuals, there seems to be
positive price reactions within a very few days prior to the announcement dates. The
study somehow, observes that prices of stocks of DSE listed firms seem to be determined
by volume of continuous trading among individual investors.
