Dividend Analysis (Efficient Market Hypothesis)

DIVIDEND (Using T-Test Paired Means-Efficient Market Hypothesis)

            According to the theory, there are different types of efficiency :

1.      The Weak Form

-Security prices reflect all information found in the past prices and volume.

-If the weak form of market efficiency holds, then the technical analysis is of no value.

-Since the stock prices only responds to the new information, which by definition arrives randomly, stock prices are said to follow random walk.

2.      The Semi Strong Form

-Security prices reflect all publicly avaiable information

-Publicly avaiable information includes :

            a. historical price and volume information

            b. published accounting statements

            c. information found in annual reports

3.      The Strong Form

-Security prices reflct all information-public and private

	Stock Price (Close) -10 before dividend payment	Stock price (+) 10 after dividend payment
Mean	337.5	307.8333333
Variance	37.5	15.76666667
Observations	6	6
Pearson Correlation	-0.226191933
Hypothesized Mean Difference	0
Df	5
t Stat	9.064659386
P(T<=t) one-tail	0.000136613
t Critical one-tail	2.015048372
P(T<=t) two-tail	0.000273225
t Critical two-tail	2.570581835

 

The table shows the result from T-test with α 0.05. We compare t-stat with t-critical :

T –stat > t-critical

9.064659386 > 2.570581835

If the t-stat is bigger than t-critical so it is mean that dividend payment affect the stock price, than we can conclude that the market has Semi Strong Form Efficiency because all publicly information can affect the stock price.