Bond and stock market response to unexpected dividend changes

Hui-Ju Tsai and Yangru Wu ()

Journal of Empirical Finance, 2015, vol. 30, issue C, 1-15

Abstract: We use comprehensive transaction data from Trade Reporting and Compliance Engine to study the response in corporate bond market to dividend announcements and compare that with the response in stock market. We find that the information content/free cash flow effect dominates the wealth transfer effect in bond market. The relationship between the magnitude of dividend changes and future profitability is weak. However, the reaction in stock and bond markets on announcement dates can be informative about the earnings one year after announcements. Additionally, the reaction of speculative-grade bonds on announcement dates is more informative about future profitability than that of investment-grade bonds.

Keywords: Dividend announcements; Institutional-sized bond trades; Earnings forecasts (search for similar items in EconPapers)
JEL-codes: G12 G14 G35 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:30:y:2015:i:c:p:1-15

DOI: 10.1016/j.jempfin.2014.11.001

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