The second set of studies document the longer term

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Unformatted text preview: ar. The second set of studies document the longer-term returns o n portfolios constructed of companies that increase their dividends the most. Here, the results are mixed. After the initial price jolt created by the dividend increase, there is some evidence of continued price increases6 for a few weeks after the announcement but the price increase is modest. In other words, buying stocks that have boosted dividends recently does not deliver higher returns in the long term. 6 Michaely, R, R.H. Thaler and K.L. Womack, 1995, Price Reactions to Dividend Initiations and Omissions: Overreaction or Drift? Journal of Finance, v50, 573-608. This study looked at returns on stocks that increase dividends in the months after the dividend increase and concludes that stocks that increase dividends continue to do well whereas stocks that decrease dividends are poor investments. 24 Crunching the numbers For purposes of analysis, accept the argument that stocks that have high dividend yields are good investments....
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This note was uploaded on 01/17/2012 for the course ECON 101 taught by Professor Econnorm during the Spring '11 term at Art Institutes Intl. Minnesota.

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