An empirical study on effect of bonus announcement on share price volatility and liquidity and its impact on market wealth creation of informed investors in Bangalore with special reference to CNX NIFTY stocks of NSE
Journal Title: International Journal of Marketing and Technology - Year 2012, Vol 2, Issue 9
Abstract
This paper investigates the market reaction to bonus issue announcement news, using a event study methodology for Nifty stocks from 1995 to 2011. There are several theories that have been advanced to explain why companies go for stock dividends. In previous studies, it is evident that stock returns are significantly affected negatively or positively around bonus issue announcement dates. Informed investors market wealth is affected to a greater extent around this event. The purpose of this study is to test whether the investor can gain or lose an above normal return by relying on public information impounded in a bonus issue announcement. Using risk adjusted event study methodology, this study tests where there is excessive abnormal return exists during event window of announcement. Bonus announcement sample observations S&P Nifty INDEX were analyzed using standard risk adjusted event study methodology. The event study methodology was employed in the determination of the effects of the bonus. Abnormal returns were calculated by use of the market model and t-tests are conducted to test the significance. We find the existence of significant positive abnormal returns on AD 0, but under a short run of AD+3 abnormal returns do not persist and dilutes to its normal return. The study found out that the Indian market reacts positively to bonus issues. Also shown a increase in volumes of shares traded around the bonus issues date. There is also an increase in trading activity after the bonus announcement as compared to that before the announcement.
Authors and Affiliations
Prof. Suresha B and Dr. Gajendra Naidu
Keywords
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- EP ID EP19553
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