Market Reactions to Dividend Declaration on Equity Share Price and Volume with Particular reference to Bombay Stock Exchange, India

Stock price movement with respect to dividend announcements is an important issue that attracted many academicians and scholars in emerging stock markets over decades. This study was undertaken to test the validity of the application of Dow Theory in the contemporary situation of Indian stock market by investigating the market reactions to dividend announcements on equity price and traded volume. All companies listed in the eleven sectoral indices in Bombay Stock Exchange have been selected for this study. The study covers all 851 dividend announcements made by these companies from the financial year 2009–10 to 2013–14. This study uses secondary data on daily share price and traded volume published by Bombay Stock Exchange to study their impact due to declaration of dividend. This research has adopted the Event Study methodology to find out the abnormal average return on account of dividend declaration. This study found that, dividend announcements have made significant impact on share price and traded volume during the event window. Also the tenets of Dow Theory were validated and discussed in this study. The mean abnormal average return and traded volume during the post event announcement is higher than the pre event announcement.