Share price sensitivity in Insurance sector: An Event Day study

Abstract

The concept of stock market efficiency has been widely explored in financial literature, with researchers and analysts examining three distinct forms of the efficient market hypothesis (EMH). This study focuses on stock price reaction to dividend announcements, which constitute publicly available information. The research is considering dividend declarations made in 2023 by five insurance companies listed in the BSE-200 Index. The daily returns of these companies are regressed against the market index from January 2023 until the relevant dividend announcement dates to predict expected returns and assess stock price reactions. Abnormal Returns, Average Abnormal Returns (AAR), and Cumulative Average Abnormal Returns (CAAR) are calculated for the 29-day period pre and post the event day i.e., dividend announcement. The data shows that days with negative returns are more common than those with positive returns. Furthermore, t-test results show that both positive and negative CAARs can be obtained by investing in stocks after dividend announcements, as there is no enough statistical evidence that dividend information is fully reflected in security prices.