Calendar anomalies and dividend announcements effects on the stock markets returns

Abstract In this study, we extend the existing literature around dividend signaling theory and calendar anomalies by addressing the question of whether calendar anomalies, including Halloween, Turn-of-the-Month (TOM), January, Monday, and Friday effects, have any influence on the relationship between stock returns and dividend announcements. Previous studies have primarily focused on demonstrating the impact of calendar anomalies on overall stock market returns. Our main aim is to investigate whether the Cumulative Abnormal Returns (CARs) associated with dividend announcements made by firms listed in the FTSE 350 index exhibit deviations from the norm due to these calendar anomalies. Our findings reveal a notable asymmetry in the reactions to dividend increase and decrease announcements. Specifically, the timing of dividend increase announcements appears to have no significant effect on their associated CARs. However, dividend decrease announcements made during periods characterized by seasonality exhibit CARs that differ significantly from those observed during normal times. Importantly, these findings remain robust across various alternative economic model specifications, including interaction models, binary models, and GMM estimations. Consequently, our results suggest that calendar anomalies, such as Halloween, January, and Friday effects, play a key role in shaping the association between stock returns and dividend announcements.