Dividend policies and investor behavior
Most investors are looking for the highest possible returns with the lowest possible risk. This paper analyses whether shares have a significant abnormal return relative to the benchmark index before or after the ex-dividend date. This paper analyses dividend policies and
Cedric Huber & Simon Keusch, 2021
Bachelor Thesis, UBS Switzerland AG
Betreuende Dozierende: Anna Caroni
Keywords: Dividend policies, investor behavior
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This bachelor’s thesis will examine whether the implementation of a certain strategy around the exdividend date is worthwhile. The starting point of this paper is the model derived by Miller and Modigliani (1961) under highly simplifying assumptions on the irrelevance of dividend policy for the market value of the firm. Various studies have a contrary approach or examine market imperfections. Furthermore, private investors have many assumptions concerning dividends. Previous research on behavioral finance explains some investment decisions and biases investors have.
The focus of this paper is on the financial aspect with a comparison of the share price of the individual SMI shares before and after the ex-dividend date to the reference index SMI. These results will be set into perspective with literature and discussed. Furthermore, on the one hand, an observation of a possible tax shield based on quantitative data and literature is executed. On the other hand, the psychology of investors based on a survey and a literature review is examined. Finally, these influencing factors are discussed, and set into context with literature.
The results of the comparison were evaluated using two-sample t-tests assuming different variances. Consequently, the statement can be made that there is no significant abnormal return what is congruent with the Dividend Irrelevancy Theory. Even though some strategies illustrated a higher return but also a higher standard deviation. However, market imperfections such as taxes can have an impact on investors. The effective dividend tax rate for Swiss private investors is roughly three times bigger than average what leads to a disadvantage when investing into shares with a high dividend. Nevertheless, according to the survey conducted, Swiss private Investors identify high dividends as a major reason for buying a share. Additionally, a majority of the participants believe that a high dividend has a positive impact on the long-term share price of a company. This contraction is explained by literature of behavioural finance and complies with the results of the survey conducted. Due to the above-mentioned points and in order to cover all client benefits, we therefore suggest that the bank does not only offer tax-optimized investment solutions but also dividend strategy investments.
Studiengang: Business Administration International Management (Bachelor)
Fachbereich der Arbeit: Accounting, Banking, Controlling and Finance