Assistant Professor of Finance, University of Pennsylvania. The project was financed by a grant from the Rodney L. White Center for Financial Research at the University of Pennsylvania. I am grateful to Marshall Blume, James Walter, and Randolph Westerfield for valuable aid in the preparation of this paper.
The allocative efficiency of capital markets depends on the extent to which capital asset prices fully reflect information that affects their value. This paper empirically examines the efficiency with which information that may be conveyed by announcements of changes in dividends payments is impounded into the security's price. The market model is used to abstract from overall market effects during the period surrounding the announcement, and firms are also classified according to their earnings performance. The results, in general, are consistent with the efficient markets hypothesis, though some anticipation of the announcement was apparent.